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The petrochemical industry’s pandemic hangover

The North American industry has seen demand recover but still faces tough logistics and high energy prices

by Alexander H. Tullo
March 28, 2022 | A version of this story appeared in Volume 100, Issue 11

A wash tower for Sasol's ethylene oxide and ethylene glycol unit is delivered to the Port of Lake Charles.
Credit: Fluor
Sasol's project was one of many erected in the US meant to take advantage of cheap shale gas.

It’s hard to notice because the world is distracted with other matters, but 2022 will be the busiest year for North American petrochemical makers since the shale gas boom began a decade ago. Companies are opening four major projects weighing in at more than $10 billion combined.

And they are doing this while still suffering from the lingering effects of the COVID-19 pandemic. Logistic issues have slowed shipping, making it challenging to import and export products; meanwhile, demand is snapping back as the world economy puts COVID-19 restrictions behind it.

Against this backdrop, oil prices have skyrocketed since Russia’s invasion of Ukraine after already increasing steadily for more than a year. But the higher prices may benefit North American chemical producers, who make their products out of natural gas–based ethane rather than petroleum-derived naphtha, like the better part of the world does.

“It’s really been a strange world,” says Steve Lewandowski, vice president of global olefins at the consulting group IHS Markit. One of the factors making it strange, he says, is the supply chain snarls that have been endemic since last year. For example, Long Beach, California—one of the largest US ports and a choke point for Pacific trade—had to institute fees on shipping containers stranded at the port because of a trucker shortage. “The logistics have been quite the nightmare,” Lewandowski says.

John Thayer, senior vice president of sales and marketing at Nova Chemicals, warns that the logistic problems are not yet behind the industry. “It’s going to continue to be a persistent problem through 2022,” he says. “From a global logistics standpoint, obviously what’s happening in Ukraine continues to create additional uncertainty, and that could impact global logistics as well.”

But the poor logistics have helped insulate the US petrochemical market from the rest of the world, Lewandowski says. He explains that large ethylene and polyethylene projects have been starting up in Asia, but the logistic bottlenecks have kept firms from shipping to the US to fetch better prices. As a result, Asia has been oversupplied, depressing prices and squeezing profits in the region.

In North America, the opposite has been the case. Companies lost production to the freezing weather in Texas early in 2021 and to hurricanes later that summer. Supplies were tight while inventories were thin, pushing profit margins to their highest level in years, Lewandowski says. “If you ran and you were an operator in the US, you were making quite a bit of money.”

On top of logistic woes, the petrochemical industry is dealing with the most volatile energy markets since the financial crisis of the late aughts.

Economies are returning to business as usual as the pandemic wanes, causing energy demand to increase faster than production. Prices for West Texas Intermediate crude oil increased by nearly 60% in the year up to January 2022, hitting an average of $83 per barrel. US prices for natural gas rose proportionally.

The Russian invasion of Ukraine roiled energy markets further. Since January, oil prices have risen another 30%, while US natural gas has climbed a more modest 10%.

In Europe, which depends on Russia for about 40% of its natural gas, the situation is different. Natural gas prices had already mounted an unprecedented spike in December, hitting about $150 per MWh, more than 10 times higher than the price in the US at that time. In March, after the Russian invasion, natural gas prices jumped to a stratospheric $250 per MWh.

European petrochemical firms use petroleum-derived naphtha as a feedstock much more than they do natural gas. But they do suffer when natural gas prices rise. LyondellBasell Industries’ interim CEO, Kenneth Lane, recently told analysts in a conference call that his company has imposed surcharges in the region. “Higher natural gas prices directly impact our fuel costs but also show up as higher costs for our purchased electricity and steam,” he said.

Meanwhile, the oil run-up has a silver lining for North American chemical producers. On an energy-content basis, the price of natural gas is less than a third that of oil. This means US firms are enjoying lower feedstock costs than their overseas competitors. “The longer oil stays high, the longer we have an advantage,” Lewandowski says.

Nova’s Thayer says North American exports of polyethylene should increase substantially. Moreover, he points out that the local market has been healthy as well, posting 4% growth in 2021. “Global demand for polyethylene remains strong, feedstocks are advantaged in North America, and we believe that not only will we be able to supply the North American market” but also the global market, he says.

Another factor that could help the North American industry is the record number of maintenance turnarounds that firms have scheduled for 2022. This year, Lewandowski says, about 8% of US capacity will be shut for routine repairs, about twice as much as normal. Companies have been putting off the work because of labor shortages stemming from the pandemic, rough weather, and the high profits they have been reaping.

Executives now see a window to shut their plants down for repairs, given the wave of new capacity that is opening this year.

Shell Chemical will finally open its ethylene and polyethylene complex in Monaca, Pennsylvania, later this year. The company first revealed plans for the complex—the only recent greenfield ethylene project not on the Gulf Coast—in 2012 and started construction in 2017.

This project is in contrast to Gulf Coast Growth Ventures, a $10 billion joint venture between ExxonMobil and Sabic that started up in San Patricio County, Texas, in January. The ethylene cracker, with downstream polyethylene and ethylene glycol plants, was erected in just over 2 years.

Peak start-up
This year will be the biggest on record for ethylene cracker openings in the US.

Peak start-up. This year will be the biggest on record for ethylene cracker openings in the US.
Sources: Company documents, C&EN research. View full table here.
Peak start-up
This year will be the biggest on record for ethylene cracker openings in the US.

Peak start-up. This year will be the biggest on record for ethylene cracker openings in the US.
Sources: Company documents, C&EN research.View full table here.
Peak start-up
This year will be the biggest on record for ethylene cracker openings in the US.

Peak start-up. This year will be the biggest on record for ethylene cracker openings in the US.
Note: EG means ethylene glycol, EO means ethylene oxide, PDH means propane dehydrogenation, PE means polyethylene, PP means polypropylene, and n.d. means not determined. Sources: Company documents, C&EN research.

“They started studying it well after Shell started building, and they started up well before Shell,” Lewandowski says. The joint venture was able to have large components like furnaces built offshore and brought into nearby Corpus Christi on big barges. “They did it smartly and are next to the sea,” he says.

Baystar, a joint venture between Borealis and TotalEnergies that is building a cracker in Port Arthur, Texas, and a polyethylene unit in Pasadena, Texas, is scheduled to begin production in the third quarter. In Ontario, Nova will start up an expansion of its Corunna ethylene cracker and a 450,000-metric-ton-per-year polyethylene plant in St. Clair in the fourth quarter.

To handle all this new capacity, petrochemical makers will indeed rely on their cost advantage to reach the export market, Lewandowski says. “Our domestic growth isn’t that big,” he says. “So in theory, it should put a lot of pressure on the domestic market.”

Lyondell’s Lane is optimistic that the export market will come through. “We continue to see strong demand for polymers, and we expect that to continue in 2022,” he told analysts. “As markets recover from the pandemic—and especially the largest market, in China—and the supply chain constraints are worked through, we do expect that the market growth is going to be able to absorb a lot of new capacity that’s coming on line.”

The export market is a big part of Nova’s strategy in Ontario, Thayer says. The new unit in St. Clair will make high-end linear low-density polyethylene products that should be sought after in Asia, Europe, and Latin America.

Longer term, North American petrochemical makers aren’t planning nearly as much capacity as they built—about 17 million metric tons (t)—over the past decade. “We think there’s room to build a few more big cracker projects, maybe 6 to 8 million tons more ethylene and derivatives over the next 10 years,” Lewandowski says. “The higher oil is, and the more we have stranded ethane because we have cheap natural gas, the more incentive we have to build ethane crackers here.”

A few projects are on the drawing board. Last October, Dow announced a 1.8 million t petrochemical plant for its Alberta site by 2027. The cracker will be the world’s first to capture and store carbon.

Chevron Phillips Chemical and QatarEnergy are mulling an $8 billion complex on the US Gulf Coast. A final investment decision is due this summer.

Despite the promise of cheap feedstocks, other projects may be languishing. FG LA, an arm of Taiwan’s Formosa Plastics Group, has been struggling with a massive project in Louisiana. Thailand’s PTT Global Chemical (PTTGC) has been kicking around one in Ohio for more than 6 years.

The FG project, unveiled in 2015, faces fierce opposition from local environmentalists. And it was put on hold last year when the US Army Corps of Engineers ordered a thorough environmental review. “We see diminishing probability that the planned mega project in Louisiana will go ahead, given the changing political atmosphere in the U.S.,” a report in October from the credit rating firm S&P Global Ratings notes.

PTTGC’s plan has also faced delays. The company stopped work in 2020 because of the pandemic. It also lost two financial partners—Japan’s Marubeni and South Korea’s Daelim Chemical—and is looking for a new one. However, PTTGC said last month that it would refile air permits, indicating that the project isn’t dead.

Kathy Hipple, a research fellow at the Ohio River Valley Institute, a think tank focused on sustainability, has her doubts about the Ohio cracker. “I would be very surprised if PTTGC came into this market,” she says.

Hipple says the difficulties Shell went through with its nearby project should give PTTGC pause. Natural gas pipelines that would have shipped gas out of the region have been canceled. This could slow the development of natural gas exploration and thus the supply of coproduct ethane for ethylene plants. And given the current emphasis on plastics waste and sustainability, the industry’s appetite for new projects isn’t what it was a few years ago, she says. “It is very difficult to forecast demand.”

If Hipple is right, the industry should emerge from the pandemic into a much changed, less go-go environment than when it went in.


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