Spotlight: Petrochemical outages could pull up prices over remainder of 2021

New York — A version of this Spotlight from S&P Global Platts Analytics was first published March 18.

The inclement weather that passed through the central US in mid-February continues to weigh on NGL markets, particularly in relation to demand for ethane and other purity products as feedstock to steam crackers along the US Gulf Coast. Several refineries and petrochemical plants have begun to restart steam crackers and other processes, including downstream units. However, several plants are expected to take longer to begin the restart process, suggesting some equipment may have been damaged as a result of the cold weather.

Overall, the timing of steam crackers completing their restart procedures and ramping up operating rates will set the tone for a price response, primarily in ethane, and to a lesser extent in propane and heavier NGLs, over the summer months.

The initial closures during the storm took an estimated 75% of US ethylene capacity offline, including effectively all the steam cracking capacity in Texas. Furthermore, away from the US Gulf Coast, Westlake Chemical's Calvert City, KY, facilities were offline, potentially linked to interruptions in ethane supply as natural gas prices spiked and ethane moved toward rejection or was otherwise disrupted. In total, nearly 32 million mt/year of ethylene capacity was offline at the peak of the storm impact.

Since then, restarts have included almost 25 million mt/year of capacity. However, many of those plants are estimated to be operating well below their nameplate capacities, as downstream restarts have been limited as well. In particular, outages have impacted styrene and polyvinyl chloride (PVC) prices, which are priced at 98 cents/lb and 73 cents/lb, respectively. Three of the four PVC producers in the US declared force majeure as a result of the storm.

Margins have remained wide between ethylene and styrene and PVC derivatives, at over $3,800/mt and over $2,700/mt, respectively. The wide margins may begin to soften through the end of March and into April and May as operators restart downstream units to produce finished products ahead of fully bringing on steam cracking capacity.

Among the crackers that remain offline and are expected to restart later this month are Chevron Phillips Chemical's Sweeny complex, Dow's Orange, TX cracker, Eastman Chemical's Longview, TX site, INEOS' Chocolate Bayou crackers, LyondellBasell's Corpus Christi site, and Shell's Deer Park cracker co-located with its refinery. Altogether, these plants represent the remaining 400,000 b/d of ethane demand that has yet to restart, and based on filings with the Texas Commission on Environmental Quality (TCEQ), may have experienced substantial damage due to the freeze.

Altogether, the systematic restart of downstream units should preserve margins at the steam cracker while downstream derivatives units are brought up to make on-spec product. Those stronger margins may start to pull up the ethane price in particular, even if crackers remain at low operating rates, simply on the absence of a lower cost alternative feedstock.

Current forward pricing shows little market pressure, adding just over 1 cent/lb to ethane over a six-month window. If gas prices fall going into the summer, any price rise in ethane may only be relative to Henry Hub, which is currently about 5 cents/gal lower than ethane. With operators signaling May as the point when plants are back to normal operations, petrochemical margins may remain strong through the rest of 2021.