m
business
(C&EN, May 24, page 11), most producers would prefer to offer polyethylene or other derivatives to the market. Ethylene inventory levels, as reported by the National Petrochemical & Refiners Association, fell below 1 billion lb for the fourth quarter of 1998 and the first quarter of 1999, the most recent data available, down from more than 2 billion lb in the first half of 1998. "At current inventories, producers will need to run between 95 and -——— 97% of nameplate capacity for the rest of the year just Commodity plastics consume to get back to comfortable majority of U.S. ethylene levels," says Stephen J. Zinger, a consultant at the Other Vinyl market research group 7% a-Olefins acetate High-density Chemical Market Associ& linear 3% polyethylene alcohols ates Inc. (CMAI), Houston. 24% 6% "The market will be strong Styrene for the rest of the year, until 7% it gets back to about 12 days of inventory," or about Low-density 2 billion lb. Ethylene polyethylene glycol A variety of production 14% 13% outages had the greatest Linear low-density Polyvinyl chloride impact on the market this polyethylene 15% spring. April was the worst 11% time, with nearly 14% of the 1998 consumption = 52 billion lb U.S. capacity experiencing Source: BT Alex. Brown operating problems at some point during the N.Y. Nearly all—94%—of the capacity is month, according to CMAI. Houston-based Equistar Chemicals along the Gulf Coast, and 75% of total production is used captively by its produc- experienced the largest outages, losing ers. Captive producers often manage eth- several days of production in both units at ylene shortages by slowing their own its 3.8 billion-lb-per-year Channelview, downstream production. However, with Texas, site (C&EN, May 24, page9).The commodity plastics markets recovering company declared force majeure after its from their dismal price levels of 1998 first outage in April (C&EN, April 19,
ETHYLENE MARKET STRETCHED THIN
Plant outages and strong demand are depleting supply and cutting inventories Paige Marie Morse C&EN Houston
A
s the Gulf Coast region of the U.S. enters the hot, humid days of summer, petrochemical producers are sweating to provide adequate supplies of the industry's key raw material, ethylene. Growth in the polyethylene market—which uses about half of the 52 billion lb of ethylene produced each year in the U.S.—has continued its strong pace, draining the stores of most producers. Coupled with a few unplanned outages of large production units, ethylene supplies have fallen to uncomfortably low levels. 'The market is extremely tight right now," says David C. Aldous, Shell Chemicals' business manager for olefins, "with fairly robust demand for all derivatives." Despite low supplies, most producers have met demand from their contract customers. However, little product is available on the spot market. Spot prices have risen from 10 cents per lb in January to 25 cents per lb in June. Production units are running hard at a time when most operators would prefer to take it easy. "Ethylene units are quite a thermodynamic marvel, operating over huge temperature ranges," says Bruce Bush, manager of olefins and trading at Phillips Petroleum. "When you are running the units very hard, which we are right now, hot weather puts a lot of stress on them. A lot of producers have got their fingers crossed right now." Although no major units are experiencing unplanned outages now, inventory levels are expected to remain low as several companies undertake maintenance shutdowns, called turnarounds, in the next few months. With little new capacity coming onstream until mid2000, the U.S. ethylene market is not expected to loosen until early next year. The U.S. ethylene market is remarkably compact, compared with other regions of the world, according to the consulting group ChemSystems, Tarrytown, 2 0 JULY 5, 1999 C&EN
Phillips produces 4.2 billion lb per year of ethylene at its Sweeny, Texas, plant
Inventory management is critical During this busy summer season, sever- brine or evenfreshwater to replace gas al ethylene producers arefindingthem- volumes at low inventory levels. selves in a difficult position. Many proWhen a cavern is filled for the first duction units are in need of maintenance time, operators carefully meter in ethylwork to run efficiently, but the market ene. When in operation, they rely on difhas a short supply, and any loss of pro- ferences between meter readings, for duction will be sorely missed. Ethylene gas in and out of the cavern, to detercustomers are demanding the maximum mine ethylene quantity. Unfortunately, levels allowed by their supply contracts, small metering errors are common, acmaking it difficult for producers to build inventory to cover a produc- — tion outage. Salt domes along Gulf Coast At times like this, close tracking are storage sites for ethylene of ethylene inventories is critical for producers. Whether they want to Depth below surface, thousands of feet cover a maintenance outage or to supply a spot market that offers delightfully high prices, producers must be sure about how much product they have available. However, quantifying and recovering this gas at low inventory levels is a challenging task. Like many other hydrocarbons, ethylene is typically stored in underground salt caverns. These caverns provide large, impermeable storage areas that do not crack under pressure and are easily accessed through single wellheads above ground. Large formations, often called salt domes, are common Storage caverns Salt along the U.S. Gulf Coast, where more than 90% of U.S. ethylene is produced. Smaller, layered salt cording to operators. After several years structures occur in the northern U.S. Salt caverns aretypicallyformed by of operation that includes daily moveusing fresh water to dissolve the salt, ment of several million pounds of ethylfollowed by the removal of most of the ene in and out, having a large error in inbrine to create a cavern for the gas. Un- ventory is possible. Most ethylene prolike manufactured metal storage tanks, ducers say errors on the order of 5 to the exact size of the caverns is not easily 10% are typical. When inventory levels are low, such variances can affect the determined. "Many caverns are nonuniform in ability to cover the few extra days needed shape," says James K. Linn, manager of to complete a maintenance project Several cavern operators use sonar storage development technology at Sandia National Laboratories, Albuquerque, equipment to get more accurate meaN.M., "because of the different dissolu- surements. By determining the location tion rates of salt impurities." The caverns of the brine layer, and considering the also change in shape and size upon us- temperature and pressure of the cavage, he adds, as operators add low-salt ern, they can calculate the total ethylene
page 18) but was able to supply its customers with reserved inventoiy and productionfromits other facilities and by reducing ethylene use at its own derivative facilities. Equistar is the largest U.S. ethylene and polyethylene producer, with annual capacities of 11.5 billion lb and 6.6 billion lb, respectively. A company spokesman reports that its Channelview units are operating normally now, but that inventories remain very low. Other producers reported outages, including several days of lost production at Union Carbide's Taft, La., unit. Mobil also
volume. However, exact temperature and pressure readings are critical to the accuracy of these calculations because ethylene remains a gas upon storage, in contrast to most other cavern-stored hydrocarbons that liquefy. "Ethylene storage is a very complex undertaking," says Steven J. Seni, deputy assistant director of underground hydrocarbon storage for the Railroad Commission of Texas. The commission oversees the permitting and operation of — more than 500 salt caverns in Texas. About 30 are used for ethylene, and the remainder are primarily for ethane, propane, and natural gas. Typical salt domes are 100 feet in diameter and 2,000 feet high. Total ethylene storage capacity in Texas is about 1.7 billion gal. Seni reports that some cavern operators have begun to use downhole temperature and pressure meters to get more accurate readings and to record variations that occur across their caverns. The commission recommends that hydrocarbon storage caverns be emptied at least every five years to ensure accurate measurement and structural integrity. Another issue for ethylene suppliers when operating at low inventory levels is ensuring that product quality is high. As salt caverns are emptied of ethylene, operators add brine to maintain the cavern pressure and ensure that the walls do not collapse. The brine transfers carbon dioxide—absorbed from the air when the brine is stored in retention ponds on the surface—and water vapor to the remaining ethylene. To meet tight purity specifications, ethylene suppliers must use slowerflowrates and multiple passes over drying beds to remove the increased levels of impurities. When producers say that six days of ethylene supply is "uncomfortably low," no doubt they are referring to the challenges of recovering the small quantities of product that remain in their storage sites.
had trouble restarting its Beaumont, Tex-- I nies must store about 100 million lb of as, unit after completing a 575 million-lb-- ethylene to maintain supply during a typiper-year expansion project in March. Thej cal maintenance project, a difficult feat in company reports that it has gradually in-- a tight market. After it completed a turnaround at one creased the unifs production rate and is5 . of its Sweeny, Texas, units, Phillips was currently running at about 90% of capacity. This tight market creates a timingI unable to accumulate enough ethylene to challenge for producers who need to per-- cover a second turnaround scheduled for form maintenance work on their units.. June. "Many customers started to take Several turnarounds have been delayed1 contract maximums" this spring, Bush to late summer or fall, as producers strug-- says. BP Amoco also shifted a turnaround gle to accumulate enough inventory to) cover a production shutdown. With thei project at its Chocolate Bayou, Texas, ever-increasing size of new units, compa-- I site from June to later in the year in orJULY5,1999C&EN 21
business der to ensure adequate inventory levels. The 3.3 billion-lb-per-year site is the company's only ethylene unit in the U.S. Dow Chemical, a net buyer of ethylene, was unable to delay projects at its Plaquemine, La., and Freeport, Texas, sites, says Frederick Knopp, commercial manager of light olefins. The Plaquemine project—which is currently under way and will be completed this month—will also add 200 million lb of capacity, raising the company's annual capacity to 7.8 billion lb. An August turnaround is scheduled for a Freeport unit, to be followed by an expansion project that will add 500 million lb of annual capacity early next year. Merchant-supplier Shell will also complete a 200-million-lb expansion in the next several months, increasing annual capacity at its Norco, La., site to nearly 3.5 billion lb. The company had planned an expansion at its Deer Park, Texas, plant late next year (C&EN, May 4, 1998, page 17), but Aldous reports that the date has slipped to 2003. 'We decided that the market timing was not good for that project," Aldous says. As currently planned, the expansion will add 1.2 billion lb to the Deer Park unit. Spot market prices for ethylene have more than doubled in the past six months, whereas contract prices have risen a healthy 4.5 cents per lb from January through May. June contract prices had not been settled as C&EN went to press; most producers were hoping to gain another 2 cents per lb, following a 2-centper-lb price increase in May. "It is rare that ethylene ever moves up in those kinds of monthly increments," ChemSystems' Darryl C. Aubrey notes. "It usually moves up by xk to 1 cent per lb." Although prices are improving, rising feedstock prices mean that producers' margins are not necessarily getting better. Ethane prices, in particular, have risen significantly in the past several months as producers switched to lighter feedstocks to increase ethylene production. 'The industry has seen a real surge in the volume of ethane consumed versus the volume of naphtha" for feedstock, Phillips' Bush says, "and that has forced the price of ethane up. Producers have trended away from the economic feedstock of choice because they had commitments to supply ethylene to their customers or their own derivative plants." Ethane prices rose to 35 cents per gal earlier this spring but have recently settled at about 27 cents per gal. 2 2 JULY 5,1999 C&EN
The discussion about feedstock price year Alberta unit next summer plus two and availability has become increasingly other Gulf Coast units in early 2001—a common among ethylene producers in 1.9 billion-lb-per-year unit by a BASF-Fina recent years. For example, analysts tout joint venture and a 1.8 billion-lb-per-year the economic advantage of the joint- Formosa Plastics unit—will boost capaciventure cracker being built by Nova ty substantially and push prices down. Chemicals and Union Carbide in Alberta, With domestic ethylene growth at about Canada, where ethane prices are particu- 3% per year, only one world-scale cracker larly low. Moreover, several U.S. petro- is needed each year to ensure adequate chemical producers have been lured into supply, Aubrey comments. joint ventures with Middle Eastern proThe overcapacity problem will be ducers because of the availability of light, worse globally. Annual demand growth is cheap feedstocks. predicted to be 4.7% through 2005, but caThis shift to lighter feedstocks is a pacity will jump by 8.5% next year to nearshort-term phenomenon, ChemSystems' ly 200 billion lb. Prices will decline, Aubrey believes. U.S. producers will Aubrey predicts, and the next industry gradually decrease their use of ethane in peak will not occur until 2003, assuming the next several years, from 53% in 1997 companies make no changes in their curto 51% in 2005, in favor of naphtha, which rent plans. However, U.S. petrochemical producwill increase to 18% in 2005, up from 16% in 1997. Although naphtha feedstocks ers seldom stick to their initial plans. produce less ethylene, they allow for pro- "With the life the market has shown this duction of other useful hydrocarbons, in- year," he says, "it could cause producers to accelerate some expansion plans that cluding propylene and aromatics. Most producers do not expect today's they would not have otherwise done if good prices to last much beyond this prices had stayed where they were at the year. The start-up of the 2.8 billion-lb-per- beginning of the year."^
Degussa-Huls: Making a merger work
I
t has been just a short time—since February—that official documents were completed, marking the merger of the two German firms, Degussa and Hills (C&EN, Jan. 18, page 22). But in that brief time, officials from both companies say that a single identity has taken over. Employees have begun to think of themselves as part of Degussa-Huls, not as representatives from the two formerly independent companies. Of course, the details and the hard work came well before the merger itself. But it is how that work was done and the work that has been done subsequently that are the keys to why the merger has "taken," the executives say. The main lesson has been to do your homework—and a lot of it—early in the game to establish a sound agreement. That is particularly noteworthy, executives at the two companies note, given the chemical industry's recent whirl of announced mergers that were abruptly canceled. "We have established our identity in just two months," says Dierk Paskert, an executive vice president for corporate development at Degussa-Huls. 'The process doesn't have to take years; it takes just a few months." His colleague, Michael Verbeek, also
an executive vice president for corporate development, agrees with that assessment. "It is the feeling of the people: We belong to the new entity.'" The two companies each had its own traditions. Degussa, for example, was founded some 125 years ago, but since the merger, "we talk about a team," almost as though the new company itself had existed for a long time, he adds. The merger will elevate what had been two second-tier chemical producers into one specialty chemicals company that will be among the top 10 chemical companies worldwide. With fiscal 1998 pro forma sales of $12.1 billion, the company would rank larger than such giants as Akzo Nobel and Rhone-Poulenc. Veba, Huls's parent, said, 'We want a major company, and Huls alone is not big enough," Paskert relates. 'We started looking at U.S. specialty companies first, but we couldn't justify the price to be paid." Such an acquisition, he says, would have diluted "earnings for the next decade. But then we asked ourselves, Why are we always looking across the Atlantic?' We should look at the home market, to see who could give us the same benefit." Degussa was a very international company, Paskert points out, and had
