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PETROCHEMICALS Despite growth in downstream demand, stable profits are eluding producers of the major chemical building blocks Ann M. Thayer C&EN Houston
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he petrochemicals market is like a rodeo event. If the ride is good, you stay on for several seconds. If it's bad, the slightest upset can throw you into the dirt. But instead of several seconds, the petrochemical industry ride is several years. The industry rises to prosperous periods of tight supply and demand, where it was in late 1994 and early 1995, and falls into periods of high costs and lower profits, where it landed in 1996. The outlook for 1997 is mixed, and many industry analysts do not expect to see another peak in profits until about 2001 or 2002. Petrochemical producers won't concede that industry profits have hit the dirt entirely. They recognize that unexpected events too easily can alter profitability in markets for the major olefinsethylene, propylene, and butadiene— and the aromatics—benzene, toluene, and xylenes. Only a year ago, producers anticipated an upswing for 1996. "In late 1996, the feedstock situation jumped up and bit the whole industry," says Ronald J. Schuh, senior vice president for petrochemicals at Occidental Chemical. "That was the surprise. Demand for all the major products from the crackers was decent, but feedstocks just became so expensive that margins were squeezed." Inventories for natural gas liquids, which are the source for about 70% of U.S. olefin production, remained extremely low all year, explains Schuh. When winter hit, there was a "cold shock" that was a blow to propane users in particular. Propane prices reached 70 cents per gal, well above the 45- to 50-cent range considered to be the competitive limit. The price of ethane jumped to about 40 cents per gal. Crude oil supplies, from which most petrochemical production is derived, were not any more accommodating. During 1996, petroleum producers kept inventories low in anticipation of Iraq's beChevron's Cedar Bayou, Texas, plant produces ethylene and propylene.
20 MARCH 24, 1997 C&EN
ing allowed to sell "humanitarian" crude. However, the Iraqi oil didn't reach the market until January 1997. Benchmark oil prices soared during the latter half of 1996, hitting nearly $28 per barrel in the fourth quarter. Oil prices have fallen in 1997. Benchmark crude prices now are closer to $22 per bbl. Propane has fallen to less than 40 cents per gal and ethane is closer to 20 cents. Petrochemical producers expect feedstock prices to remain relatively low if there are no sudden weather changes or supply disruptions. The ethylene market is in a tenuous position, say marketing and business managers. Producers probably have been running at very high operating rates, close to 97 or 98% of capacity, for the past few months. With relatively low feedstock costs and somewhat stable prices, they are taking advantage of the improved margins. Transaction prices for ethylene rose in the fourth quarter of 1996 to just more than 25 cents per lb, up from about 18 cents a year earlier. The run-up was
largely sympathetic to feedstock prices. Currently, buyers and sellers are expected to battle over prices, reports Plastic Market Monthly Monomers, published by Houston-based consultants Phillip Townsend Associates. According to data compiled by the National Petroleum Refiners Association (NPRA), U.S. ethylene production increased about 4.5% in 1996 to 49.1 billion lb. Growth of about 4%, or about 1.3 times gross domestic product (GDP) growth, is expected this year. Although ethylene inventories increased to 1.76 billion lb in the fourth quarter of 1996, up from a low of 1.49 billion lb in the second quarter, producers are not calling them "fat." During 1996, about 1.2 billion lb of new ethylene capacity was brought online, while demand increased more than 2 billion lb, say ethylene business managers. Major additions included 575 million lb at Phillips Petroleum's Sweeny, Texas, plant that will be followed by another 400 million lb in April. Shell Chemical added 300 million lb in Norco, La., Lyondell Petrochemical added 150 million lb in Channelview, Texas, and Quantum Chemical (now Millennium Petrochemicals) added 150 million lb in La Porte, Texas. "Everything is running pretty much at full bore right now," says J. G. (Jim) Johnson, Chevron Chemical's business manager for olefins. "If there is one unplanned outage, the industry could run into a very tight supply-and-demand balance."
other approach is to join with other producers to share risks and make the construction of and pro duction from world-scale ethylene crackers more cost-effective. Lyondell, which has been one of the industry's largest merchant suppli ers of ethylene, bought Occidental Chemical's polyethylene business in 1995 and now is planning to expand production. OxyChem's Corpus Christi, Texas, olefins plant. OxyChem has chosen to integrate through the Outages contributed last year, as in pre polyvinyl chloride chain with ethylene di vious years, to tightness in the ethylene chloride, and it also produces ethylene ox market. In 1996, an estimated 700 million ide and ethylene glycol. And Exxon Chem to 1 billion lb of production was lost from ical bought out AlliedSignal's share of their temporary shutdowns at Shell, Lyondell, Paxon polyethylene joint venture. Phillips, and Chevron, estimates one ethyl Amoco Chemicals acquired Albemarle's ene sales manager. α-olefins production as a downstream oper But any tightness in 1996 didn't help ation for its ethylene production while it producers' profitability. Volumes were agreed to sell its polystyrene business to very good and demand increased substan Huntsman Corp. in 1996. In ethylene, tially, explains Johnson, but were not Amoco now is roughly one-third integrat enough to offset high feedstock and oper ed and two-thirds a merchant seller. ating costs. "Margins didn't reflect how "Amoco still is dedicated to the mer good the business should have been." chant market," says Warren J. King, Amo Demand growth of 5 to 6% from down co's vice president for global business stream derivatives markets seen in 1996 is management in chemical feedstocks. "But not expected to be sustained quite that our contract position and acquisition of high in 1997. Ethylene producers express the α-olefins business puts us in a good concern about inventory building and ca position to keep our plants fully loaded." Lyondell will meet its growing need pacity additions that may soften the major derivatives markets, which include poly for ethylene through a joint venture with ethylene, ethylene dichloride, ethylene ox Union Carbide and Quantum. The three companies are building a 2 billion-lb-peride, and ethylbenzene. Significant structural changes have been year ethylene cracker at Lyondell's Chantaking place in the ethylene industry as pro nelview site that is to start up in 2000. Union Carbide, one of the largest U.S. ducers try to buffer these effects. One ap proach has been to acquire downstream net buyers of ethylene, will build an ethyl production to integrate operations and re ene unit with Nova Corp. in Alberta. The duce exposure to the merchant market. An two companies are discussing the possibil-
Petrochemical profitability slumped in 1996 Cash cost margins3 (first-quarter 1982 = 100, constant dollars)
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ity of increasing the plant's planned capac ity by 800 million lb to 2.8 billion lb. For mosa Plastics is to add 1.8 billion lb of eth ylene capacity at Point Comfort, Texas, sometime around 2000. To assure itself of petrochemical feed stocks, Huntsman joined with Enron Liq uid Services in April to build a 1.5 billionlb-per-year ethylene plant. However, sever al months after announcing its intention to increase the plant's capacity to 1.75 billion lb, Huntsman let the agreement expire. Huntsman says it intends to go ahead with the plant anyway, with start-up scheduled for 2000 instead of 1999. "We are in the midst of talking to oth er potential partners," says Donald J. Stanutz, vice president for olefins and perfor mance chemicals at Huntsman. "And we are talking to a wide range of companies and are not limiting it only to those who bring feedstocks with them," as did Enron. To better balance its production and consumption, says Johnson, Chevron is ex panding its Port Arthur, Texas, ethylene plant by more than 700 million lb this year. Although the company has about 2.7 bil lion lb of capacity, it has been a net buyer of ethylene, which is used in its polyethyl ene, α-olefins, and styrene production. Chevron's expansion will be among more than 4 billion lb of new ethylene ca pacity that is to be brought onstream in the fourth quarter of 1997. Westlake will start up a 1.3 billion-lb-per-year cracker in Lake Charles, La.; Union Carbide will add 700 million lb in Taft, La.; and Exxon will operate a new 1.5 billion-lb-per-year crack er in Baytown, Texas. In early 1998, Shell, Rexene, Mobil, and Chevron plan to add another 1 billion lb through process im provements and expansions. Most of these expansions were an nounced during the last profitability peak when producers could think about invest ing in new plants to meet growing de mand. Healthy 3 to 3-5% growth in ethyl ene demand will only sustain about one new ethylene cracker per year. Thus, it is expected to take a few years before the 1997 and 1998 additions are absorbed. Managers and consultants predict that in 1998 and later, operating rates will fall as low as 85 to 87%. As history teaches, higher cost producers may have to ratio nalize production capacity or even shut down.
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MARCH 24, 1997 C&EN 21
business In 1997, the maintenance schedule is "very light," according to Tom T. Wisner, a senior consultant with Pace Consultants in Houston, so not much ethylene production will disappear temporarily through shutdowns and ease the overcapacity. However, he suggests, there might be some "slippage" in timing for plant expansions as producers reconsider market conditions. Capacity utilization rates below about 93% clearly "give customers downward pricing leverage," says Samuel M. Weinberger, ethylene planning manager for Exxon Chemical. "Just about every industry observer and consultant . . . believes that the late 1990s and early 2000s will have an ethylene supply-demand environment fundamentally softer than the mid-1990s," he said at a petrochemical industry meeting in late January. Still, 1997 at least is expected to start out well for ethylene producers, with better margins than seen in 1996. Comments Schuh: "The next two quarters should [show] some fairly good profitability. The feedstock prices are down, the demand for our products is strong, and the inventories for our products are relatively low. Then it will get shaky, I'm afraid." Although closely tied to ethylene production, the propylene market looks entirely different. Despite all the new ethylene production capacity, there is some concern about future propylene supply. In the U.S., the majority of propylene is produced as a coproduct with ethylene. The second major source of propylene is refinery operations where the olefin is separated from other streams. Only a few percent is produced on demand through propane dehydrogenation. The new ethylene crackers are slated to use light feedstocks—ethane or ethane/ propane—that produce a very small percentage of propylene. But demand for propylene is expected to grow, as it has in the past, at about two times GDP—or between 5 and 6%—for the next few years. In 1996, U.S. propylene production for nongasoline use decreased 2.3% to 25.1 billion lb, according to NPRAfigures.About 54% was coproduct, which increased 1%, and the rest was from refinery sources, which decreased about 7%. "Propylene growth was lower than the historic trend in 1996," says Stanutz. "I think it was somewhat of an aberration—more of a timing issue than anything else. "It just happened that new polypropylene plants were starting up at the end of 1996 and the beginning of 1997," he explains. "If it had been six months earli22 MARCH 24, 1997 C&EN
Producers are integrated downstream into derivatives to different degrees. Exxon—the largest producer, with an estimated 3.8 billion lb of capacity—uses about one-third for polymers. In contrast, Lyondell—the second largest producerconsumes very little for its own polymer use, as is taie for Shell, which uses some in chemicals production. Chevron has capacity to produce 1.7 billion lb of polymer-grade propylene, which is all merchant marketed. It also produces some refinery grade, which it uses to produce cumene. The company will increase propylene capacity by about 100 million lb in Cedar Bayou when it expands its ethylene cracker during a maintenance shutdown in 1998. Industry consultants suggest that secure supplies of propylene—either through integration, joint ventures, or — — ^ — supply agreements—will become increasingly important U.S. ethylene, propylene in positioning derivatives production to grow in 1 9 9 7 projects. Chevron's Johnson calls this developing trend Billions of lb 601 "regionalization," in which propylene and derivatives 50 production are being put in Ethylene close proximity. 40 "A lot of the Texas barrels of refinery-grade propyl30 Propylene1 ene are already coming out and going into chemicals," 20 he says. "The next area that 10 probably will develop is Louisiana because it is a 0 b pocket that has some [sup1986 87 88 89 90 91 92 93 94 95 96 97 ply] . . . and there is a lot of a For chemical use. b C&EN estimates. demand in the Southeast Source: National Petroleum Refiners Association where [fibers] and textile manufacturing takes place." Polypropylene producer Epsilon reare negotiating a lesser increase for February and a flat price for March. Refinery- cently announced a project in Garyville, La., with Marathon Oil that will upgrade grade prices continue to rise. Demand for propylene is driven by its propylene production from Marathon's remajor derivatives—polypropylene, acry- finery nearby. Epsilon also is working with lonitrile, and propylene oxide—which Sun to get polymer-grade material for its themselves have been undergoing ex- polypropylene units on the East Coast. pansions. Polypropylene, which ac- And Arco will put a polypropylene plant counts for more than 50% of demand, is in California to take advantage of feedexpected to continue to grow at more stock from its refinery there. than 5% per year through 2000. With coproduct amounts increasing litTo meet the demand, some propylene tle, the proportion of propylene pulled producers are adding splitters to increase from refinery streams is expected to inoutput from refinery streams. In the second crease, says Pace's Wisner. "There's a big half of 1996, Diamond Shamrock and Fina pool of propylene to draw from if the added a 720 million-lb-per-year unit at Mont price gets right," he says. "Any potential Belvieu, Texas, and Sun Co. added 250 mil- shortfall could be corrected with refinerylion lb at Marcus Hook, Pa. This year, Enter- grade material." In the U.S., prices have prise and Montell are to start up a 900 mil- not reached a point where, on average, lion-lb-per-year unit at Mont Belvieu and they support the economics of building Exxon will add 570 million lb in Baytown. propane dehydrogenation plants. er, then they would have chewed up a lot of propylene. We should return more to the historic [growth] trend in 1997 and 1998." Right now, producers say the propylene market is tight, as indicated by prices for spot purchases of polymer-grade propylene being higher than contract prices. Overall, propylene inventories fell more than 480 million lb during the first three quarters of 1996, but rose slightly to end the year at 1.19 billion lb, according to NPRA, or about a 15-day supply. As of early March, prices for chemicalgrade propylene are expected to increase about V2 cent for February and stay flat in March, according to the Phillip Townsend Associates report. The biggest buyers of polymer-grade propylene have yet to accept a price increase and
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The justification for extracting propylene also depends on its relative value, which fluctuates seasonally, for keeping it as a gas oline alkylate. "It will take a higher propyl ene price compared to ethylene, than has historically occurred, to continue to bring out the swing supply characteristics of propylene," says Stanutz. "As the price goes up, the industryfindscreative ways to generate more propylene to meet demand." In 1996, Huntsman became one of the largest U.S. producers of butadiene, also largely a coproduct of ethylene produc tion, when it expanded its plant in Port Neches, Texas. The company now has an nual production capacity of about 800 mil lion lb. Houston-based Texas Petrochemi cals and Shell Chemical have similar nameplate capacities. Other significant U.S. producers include Exxon, Lyondell, and OxyChem. Butadiene is used primarily to produce synthetic mbber, latex, and nylon. Accord ing to NPRA, 3.85 billion lb of butadiene was produced in 1996, a 4.4% increase over 1995. In 1997, butadiene prices have been falling because of plentiful supply. "The market is somewhat well bal anced," says Huntsman's Stanutz. "We don't see multiples above GDP growth for butadiene," as are seen for the other ole fins. Stanutz characterizes butadiene as a "very solid, consistent product," feeding a mature elastomer market and slightly fast er growing markets for specialty synthetic rubbers. Whereas olefin markets may have a few more quarters of profitability, the markets for aromatics already have it tough. Overcapacity, expansions in de rivatives production, and feedstock costs have hit the major aromatics. Like the olefins, aromatics are influenced by the polymer markets—specifically benzene, because it's used to make styrene and /?-xylene for polyester. Unlike the olefins, the aromatics move more freely on the world market such that, internationally, supply, demand, and pricing shift simultaneously. Along with tremendous growth in demand for deriva tives and in their production overseas, pro duction of aromatics is being added to meet regional needs. The results will be major shifts in the export and import bal ance and overcapacity worldwide. "I think we are hoping that the trough has been hit," says one petro chemical industry executive. "Short-term looseness in the aromatics derivatives markets last year essentially softened the prices for their chemical value, and so prices dropped to a low level."
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business According to the most recent Phillip Townsend As Xylene production to grow more sociates monomers report, than benzene in 1 9 9 7 benzene prices continue to fall and are now about $ 1.00 Billions of lb 20 to $1.05 per gal. Prices are Benzene. not expected to do much 15 better in the longer term. Still, domestic demand is ex Toluene3 pected to grow about 3.5%, 10 according to DeWitt, but production will not increase 5 Xyleneb much because of decreased η exports. 1986 87 88 89 90 91 92 93 94 95 96 97e The benzene market, in a For chemical use. b Data for o-xylene and />xylene. c C&EN estimates. which styrene accounts for Sources: National Petroleum Refiners Association, SRI International about 55 to 60% of produc tion, has "not been fun," U.S. production of benzene, the largest says Mohamed Defrawi, strategy manager volume aromatic in the BTX group, for aromatics at Shell Chemical. "Over the dropped 2.4% in 1996 to 15.6 billion lb, years, much of the styrene or its deriva according to NPRA. Prices have been on a tives have been exported," he explains. downward trend since 1990, when they "Now with all of these [derivatives] plants were more than $1.50 per gal (about 20 being built in the Far East, some of them cents per lb). Last year, prices hit a low of starting up this year, exports will more about 75 cents per gal, then rebounded in than likely diminish and net demand for January in sympathy to higher crude oil styrene will probably decline for a while." A consequence of the poor market may prices. be that not all companies will be posi tioned to wait it out. Chevron is one of the largest U.S. benzene producers and uses its Aromax process to produce benzene on purpose for its own ethylbenzene and cumene production. On purpose produc tion "makes sense when you have a feed stock advantage, captive use, and are the lowest cost producer and consume more than you produce," says Mike Zeglin, BTX business manager at Chevron. Other major benzene producers in clude Exxon, Shell, Dow Chemical, and Amoco. Like Chevron, Dow also is affect ed less by the vagaries of the benzene market because it consumes its own pro duction and is a net buyer. Exxon, Lyondell, Mobil, and OxyChem are entirely merchant marketers, whereas others such as Amoco and Shell market signifi cant amounts of their production. The biggest change in the benzene market has come from the introduction of toluene disproportionation (TDP), a pro New operations or the slightest change to a tried-and-true cess that converts toluene into benzene formula can turn your once foam-free process into billions of and mixed xylenes. Mobil's selective TDP bubbles.That's why hundreds of companies from pulp mills to process, which reportedly yields about food processors count on Wacker's foam control solutions. Have us burst your bubbles today. For technical assistance 85% p-xylene in the xylene mix, has been and a free sample, call Wacker at I -800-363-3626. licensed to other producers. The TDP process "has brought a lot of benzene to market and to that end I WACKER think the benzene market has been de Wacker Silicones Corp. pressed over the last couple of years and may very well remain depressed over the next one or two years," says Schuh. For CIRCLE 6 ON READER SERVICE CARD
BTX—benzene, toluene, xylene— production for chemical use depends on the relative value for blending the aromat ics in the gasoline pool. Like propylene, most benzene and toluene are extracted from refinery streams or from by-products of ethylene production. Benzene pro duced on purpose by other means is de creasing, while production of the largest volume xylene, p-xylene, is increasing. "I think, fundamentally, the growth in aromatics derivatives is pretty healthy and that the trend lines will return such that people in the BTX business can get the return required to bring the material out to serve those markets," says the pet rochemical executive. However, produc ers are uncertain exactly how long it will take for the market to return. Demand for benzene throughout 1996 was up about 4%, according to William P. Barry, group vice president with Houstonbased consultants DeWitt & Co., with de rivatives production running at record rates. But prices were low, driven down by excess capacity, and margins were hit by high feedstock costs. Operating rates have fallen into the mid-70% range.
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24 MARCH 24, 1997 C&EN
benzene producers, the problem is that refineries rather than buying it. And more of toluene in reformate, so it's there for use of the TDP process is driven by de- toluene is available that would have gone the market if the price is attractive." into HDA units. Longer term, some producmand for ^-xylene. "There is no question that there is more Mobil now is introducing a more selec- ers take the opposite view that toluene will [toluene available] in the reformate pool," tive toluene top-xylene process in its own move toward its "blend" value rather than comments Defrawi. '"The question is: 'Who plants. Last year, the company used the sell at a premium for chemical use. has the extraction capacity?' Most likely, the "Ifp-xylene really takes off and there is economics will not support the decisions to process to expand a plant to a capacity of about 350 million lb of jD-xylene in Chal- a lot of toluene going into these plants to build new extraction plants." mette, La. Another new plant in Beau- make it, [the market for toluene] could be However, although demand growth is mont, Texas, which will produce about a little tight," says Acosta. "It's going to be strong at 7%, profitability in the p-xylene 550 million lb of j>xylene, suffered a mi- a function of price. If it gets very expen- market fell dramatically in 1996. Accordnor explosion on initial start up, but will sive, producers will find some more ways ing to Tarrytown, N.Y.-based consultants start up in the second quarter. In the near of extracting more toluene. There is a lot Chem Systems, /^-xylene producers today future, production of benzene by the TDP process will continue to increase while that produced by other means falls. Traditionally, toluene hydrodealkylation (HDA), in which toluene is reacted with hydrogen to produce benzene and methane, has been used as "swing" capacity that could be stopped or started depending on demand. However, producers are finding it difficult to reach a balance with all the extra production from TDP. Of all producers, integrated companies with captive needs are more likely to still run HDA units. OxyChem has had its HDA unit in Chocolate Bayou, Texas, shut down since a maintenance shutdown that took place a year ago in September. "It just hasn't made economic sense to am that HDA unit," comments Schuh. The HDA unit accounts for about 25%, or about 330 million lb, of OxyChem's annual production capacity. "In a couple of years, most of those TDP units will get absorbed and benzene will come back to be a reasonable market." Similarly, Dow uses its HDA unit as We have in Stock: swing capacity. Its unit is "running at the moment," says Keith Howson, North American business manager for aromatics at Dow. "We had it shut down in 1996 from about February to July, and then we started it up in July and have run it since. If the economics go away from us, then we'll close it down." The difference between toluene and benzene prices and their relative values in gasoline are detenriining factors whether to run HDA units. In the toluene market, "blending in gasoline has taken a lesser role," says Teresa Acosta, group vice presFor fast, easy delivery of CFC's, HCFC's, HFC's or ident at DeWitt. There is "a lot of [methyl refrigerant recycling and retrofit, simply call 1-800-4-REFRON tert-butyl ether] at cheaper prices and it is a more environmentally accepted product," she explains. "It's [become] more of a chemical market now" for toluene. "Toluene is probably the tightest of the three aromatics," comments Defrawi. While TDP units have led to some increase in demand for toluene, many operators are consuming toluene extracted from their own
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MARCH 24, 1997 C&EN 25
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ward-integrated position is a funare barely covering cash costs, damental part of our strategy." whereas in 1995 it was one of Industry consultants, includthe most profitable products. ing Acosta at DeWitt, say they Overcapacity down the entire would not be surprised if some polyester chain—from ^-xylene of the planned jD-xylene projects to terephthalic acid to polyetharound the world are reasylene terephthalate—is hurting sessed. For example, last year j£-xylene producers. Amoco halted plans for a ^xyGlobal capacity will nearly lene joint venture with France's double by 2000, with the bulk Total in Europe. going into the Pacific Rim, re"There are certainly reasons ports Chem Systems. Operating to look at these projects and rates are expected to fall from a reassess them," says Acosta. level of about 90% last year to Start-ups still are scheduled in less than 70% in 1998. Tough the U.S., but companies abroad times are expected to persist for "may take another look at, if several years until demand Amoco's Texas City, Texas, complex houses its p-xylene plant not canceling altogether, postcatches up with supply. Hie situation has become so bad that 1 billion lb, in Pascagoula, Miss., in 1998. poning or staging these projects a little producers insinuate that Exxon's shut- Phillips plans a 165 million-lb-per-year ex- bit better," she says. Longer term growth inp-xylene is exdown that it attributed to "technical prob- pansion in Puerto Rico in 1997. lems" from February througli December Whereas Chevron is entirely a merchant pected to be good for those who can 1996—as well as a reported shutdown by marketer of p-xylene, Amoco is fully inte- hang in there. As for the other petroAmoco—was really a reaction to the poor grated, with downstream production into chemicals, the most viable companies market. With about 43% of U.S. capacity, terephthalic acid. "We still feel the polyester probably will be integrated producers Amoco is expanding capacity in Decatur, chain is going to display strong growth," with lower cost positions who have the Ala., by 770 million lb in late 1998. Chev- says King. "We are dedicated to maintaining balance and stability to stay on during ron also will double capacity, to about our strong position in the market. Our for- the bumpy rides.M
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