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Construction underway on Dow's Texas cracker expansion: executive

Houston — DowDupont has begun construction to expand its 1.5 million mt/year steam cracker in Freeport, Texas, to push its capacity to the largest in the US, a top executive said Thursday.

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"We recently began construction on the expansion of our new Texas-9 ethylene facility, which will increase its capacity to 2 million mt," Jim Fitterling, chief operating officer of Dow's materials science division, said during the company's quarterly earnings call.

DowDupont started up the facility nearly a year ago, shortly after Hurricane Harvey's assault on the Texas Coast. The expansion will support Dow's derivatives operations as well as MEGlobal's adjacent 700,000 mt/year monoethylene glycol plant also under construction. Dow's additional 500,000 mt/year in ethylene capacity is slated to come online in late 2019, after MEGlobal's new plant starts up in mid-2019.

Ethylene prices have hovered near all-time lows for several months amid a supply glut as derivative capacity has not kept up with ethylene output. Four of eight new steam crackers slated to start up from 2017 to 2019 are operating, the latest being ExxonMobil's 1.5 million mt/year plant at its Baytown chemical and refining complex near Houston. Seven of 13 new polyethylene plants slated for startup in that same span are operational as well, but some had not been running at full capacity to soak up additional ethylene output.

"Ethylene's a little bit disconnected right now, just in the United States Gulf Coast, because there's not enough derivative demand or supply there to convert it," Fitterling said.

He said that situation should balance out in the short term as the year progresses.

"You've got to look at the full plastics chain margins, not ethylene," Fitterling said. "There really isn't much of an ethylene merchant market that's going to make that swing."

The US has only two merchant ethylene plants in the US that sell all their output because they lack associated derivative plants to feed: NOVA Chemicals' 855,000 mt/year Geismar, Louisiana, facility, and Flint Hills Resources' 634,000 mt/year plant in Port Arthur, Texas.

On May 10-11, US spot ethylene hit 12 cents/lb FD USG, its lowest point since S&P Global Platts began assessing spot ethylene prices in 2004. Spot prices have since rebounded somewhat, and were assessed at 14.50 cents/lb FD USG on Tuesday, with no settlement seen on July ethylene contract prices. Sources expect those contracts to settle 1-2 cents up from June, which settled at 26.50 cents/lb.

Spot US ethylene prices have fallen 55% from a post-Hurricane Harvey high of 32.25 cents/lb FD USG on September 20, 2017.

Spot prices for ethane, the cracker feedstock that yields the most ethylene, have risen more than 50% since mid-May. Market sources attribute that rise largely to fractionation capacity constraints, resulting in more ethane rejection at gas plants and tighter supply in caverns at the US NGL hub in Mont Belvieu, Texas.

On Wednesday, August non-LST ethane, reflecting prices at the Enterprise NGL storage and fractionation facility in Mont Belvieu, spiked 3 cents to close at 36.75 cents/gal. Ethane was trading 2.125 cents higher Thursday morning at 38.875 cents/gal. Prices were at a high since July 11, when S&P Global Platts assessed ethane at 39.25 cents/gal.

Cracker startups also have contributed to that strength, Fitterling said. The slew of new crackers use ethane to maximize yields of ethylene, the building block for the most-used plastics in the world. Heavier feedstocks like propane yield less ethylene.

"You've got new capacity coming on right now -- Exxon's up -- so you've got a big pull on ethane," he said. "Right now, we're heavy light. We're cracking as light as we can and we're cracking as much ethane as we can. I think we're going to be in that situation for the foreseeable future."

--Kristen Hays, kristen.hays@spglobal.com

--Andrea Salazar, andrea.salazar@spglobal.com

--Edited by Derek Sands, derek.sands@spglobal.com