America’s Energy Balances
Apr13

America’s Energy Balances

A couple of weeks ago I attended a charming annual gathering in Houston: Intellichem’s Latin American Petrochemical Networking Meeting at the Westin Galleria Hotel. There were a few good presentations at the event. One that particularly caught my attention was that of Alfred Luaces, an analyst with Purvin & Gertz, which was recently acquired by IHS. Here are a few takeaways from the presentation: 1) U.S. natural gas liquids production has risen by 15% since 2008, an increase of 270,000 barrels per day. Judging from the graph Luaces put up, production will increase another 400,000 to 500,000 BPD by 2015. Ethane will grow more than other NGL components like propane. 2) The amount of oil extracted from shale in the U.S. will hit 1 million BPD in by 2015 and 2 million BPD by 2020. (According to the EIA, today’s production, on a reasonably comparable basis that includes condensate and stuff, is about 8 million BPD). 3) Canadian crude production will increase by 700,000 BDP in Western Canada, hitting 3 million BPD by 2015. Here Luaces made a point that is consequential to the XL Pipeline. “We think this will be processed on the Gulf Coast eventually,” he noted. But in the meantime, it will be processed in Midwestern refineries until the capacity of those facilities fill up. This would back out imports from Columbia and Mexico. Much of THAT oil will just go to China. (The XL pipeline issue seems more nuanced than some make it out to be.) 4) The impact of the Gulf of Mexico drilling moratorium—according to a chart—will be about 400,000 BPD this year. 5) Since 2009, 2 million barrels of crude refining capacity has been shut down in North America and the Caribbean, mostly in the Northeast. Another 700,000 in closures may happen this year, the biggest being Sunoco’s Philadelphia refinery. 6) The U.S. is exporting more than 500 million BPD of gasoline, 325,000 BPD of that is to Mexico. The U.S. exported about 200,000 barrels in 2009. (Crack spreads, the margin between oil and refined products, have also been rising.) 7) The U.S. has become a net exporter of LPG (propane). Enterprise, Targa, Conoco/Phillips, and Vitol are planning export terminals or expanding terminals. (This seems to suggest that there may be some propane dehydrogenation opportunities out...

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Tough Times For Propylene Buyers
Apr10

Tough Times For Propylene Buyers

There is little doubt that the advent of shale is opening the spigots for massive amounts of new ethylene production in North America. However, a consequence of all the additional production of ethylene is much less production of propylene. Chuck Carr, a propylene analyst at IHS Chemical, gave a great overview of the situation at IHS’s petrochemical conference down in Houston late last month. As ethylene makers seek to take advantage of the abundance of ethane by cracking less naphtha, they are producing far less propylene. A naphtha cracker, Carr pointed out, will make about a half ton of propylene for each ton of ethylene produced. An ethane cracker will only put out about 20 kilograms of propylene for each metric ton of ethylene made. The amount of propylene coming from steam crackers has declined by 30% in only a few years. Overall, after reaching a peak of about 16 million metric tons in 2007, North American polypropylene production has declined to about 14 million metric tons. Some 54% of propylene is made in oil refineries, only about 40% is now made in ethylene crackers. Propylene prices are rising, putting polypropylene makers in a tough position. As I heard over and over again at the IHS conference and then at NPE, a plastics trade show put on in Orlando last week, high polypropylene costs are tempting plastics converters to switch to high density polyethylene when they can. Soft drink bottle caps are a key battleground application. If they have seemed a little different lately, now you know why. One company that jumps out at me as being in a tougher bind than most is Braskem, which recently purchased the polypropylene businesses of Sunoco and Dow Chemical. According to Carr’s presentation, the company has the largest deficit of propylene in North America. In fact, Braskem has no production of propylene in the region. The company’s Marcus Hook, Pa., plant is downstream from Sunoco’s Marcus Hook refinery. Or at least it was. Sunoco idled the refinery in December and looks to permanently shutter the unit over the summer. It is ending a supply agreement with Braskem in June. The supply agreement covers about 60% of the facility’s 350,000 metric tons of annual polypropylene capacity. A contract with another supplier in the region covers 19% of the capacity. In its 20-F regulatory filing put out this week, Braskem says it being supplied by Sunoco out of Sunoco’s Philadelphia refinery and from other sources. The polypropylene unit is still operating at normal levels. The company is also in discussions for long-term supplies of propylene from other refineries in the Northeast. “At this time,...

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Petrochemicals, Front And Center
Mar28

Petrochemicals, Front And Center

I took my usual seat at IHS’s World Petrochemical Conference at the Hilton Americas in downtown Houston today, front and center, as I have for 12 previous annual conferences run by CMAI. “The world is right when you’re sitting in the front row,” Mark Eramo, vice president of chemical industry research and analysis, said as he passed. He has given the big ethylene talk each year that I have attended the conference. IHS purchased CMAI since the last conference. I was worried that IHS might mess with a good thing. The conferences have been a bigger and bigger draw year after year. IHS made some changes, but they were for the better. Instead of a keynote by an august petrochemical executive, there was a panel featuring five of them. That forum gave me the impression that petrochemical executives may be exuberant about the prospects of feedstocks from shale, but they are also realistic. Since the last conference, five companies—ChevronPhillips Chemical, Dow Chemical, Shell Chemicals, Sasol, and Formosa have announced new U.S. ethylene crackers. “Not all crackers that have been announced may be built, certainly not in the announced timeframe,” noted Ben van Beurden of Shell Chemicals. Jim Gallogly, CEO of LyondellBasell, made a similar point. “It’s likely you won’t see all the crackers advanced,” he said. Lyondell, for its part, is focused on expansions of existing U.S. facilities, to the tune of half a new cracker’s worth of output. Also, Gallogly mentioned that his company would be interested in a “condo” cracker, perhaps at an existing facility. As I understand the concept, this would be a cracker that would have two or more partners, each with a defined offtake. I remember Dan Smith, a Gallogly predecessor, talking about this concept about a decade ago, just when the Middle East and Asia started getting all the petrochemical investment. If I had to guess how this might play out today, I would think it would be an project involving Lyondell, a partner with access to feedstocks, and maybe a partner trying to back-integrate an ethylene derivative such as ethylene oxide, alpha olefins, or vinyl chloride monomer. Curiously, in the Q&A, van Beurden kept on getting asked why Shell announced a cracker and Gallogly kept on getting asked why LyondellBasell hasn’t announced a cracker. In fact, one attendee brought up the exact same two problems I noted with Shell project—that Shell no longer makes polyethylene and that Monaca, Pa., is relatively isolated from the rest of the petrochemical world. Van Beurden said there is as a big advantage being close to the converters—customers would enjoy quicker delivery and less working capital tied...

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Monaca, Pa!
Mar15

Monaca, Pa!

Shell Chemical has selected the Pittsburgh area town of Monaca, Pa., as the site of its new ethylene cracker complex. Actually it will be in Potter and Center Townships, which are near Monaca, Pa. (Pop. 6,286, according to Wikipedia). But that narrows it down a lot more than what Shell was previously saying: “I don’t know, Appalachia somewhere or something.” Monaca is a bit of a chemical town. It is host to a Nova complex that makes Arcel polystyrene resins for foams and expandable polystyrene. Nova calls this the Beaver Valley site. (If that name conjures an image of a valley teaming with beavers felling trees willy nilly, I know the feeling.) This doesn’t mean that the plant is a done deal. As its press release explains: “The next steps for this project include additional environmental analysis of the preferred Pennsylvania site, further engineering design studies, assessment of the local ethane supply, and continued evaluation of the economic viability of the project.” The company isn’t saying much more about the project. It will feature an ethylene cracker and downstream polyethylene and ethylene glycol plants. We already knew about that. There’s nothing new about the size or the timing. I do have a couple of thoughts about the project: 1) Isolated ethylene and derivatives complexes never work out. If the ethylene cracker goes down, how do you run the derivatives plants and where does the ethane feedstock go? If one of your derivatives complexes goes down, do you run the cracker at reduced rates? It would be nice to see another cracker complex built in the neighborhood that would be connected to the Shell site. I suspect that we’ll probably hear from another company with cracker plans in the region before long. 2) I doubt Shell will build its own polyethylene plant. It hasn’t had any skin in the polyolefins game since it sold its stake in Basell to Access Industries in 2005. I am expecting a partner of some kind on the polyethylene unit. If it does go it alone, I would think that the plant would spew out commodity grades of polyethylene. One example of such a product would be high-density polyethylene for extrusion blow molding—used to make milk jugs. Shell would need something that is relatively easy to sell. Also, the company wouldn’t want to do a lot of switching of grades at the plant because of potential problems with excess ethylene, as I mentioned above. All this aside, it is great to see such a big chemical plant being contemplated for the...

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Georgia Gulf To Westlake: Not So Fast!
Jan20

Georgia Gulf To Westlake: Not So Fast!

You may have heard that Georgia Gulf has rebuffed a $30-per-share takeover bid from Westlake. Here are a few points: 1) By my calculations, the bid is worth just over $1 billion, or close to $1.7 billion, including Georgia Gulf’s long term debt. Georgia Gulf’s expectations for EBITDA (earnings before interest, taxes, depreciation, and amortization) for 2011 are between $245 million and $255 million. This makes the offer seem a little cheap. However, Georgia Gulf’s book value (equity less intangibles and goodwill) is about $243 million. 2) Georgia Gulf has been through heck and back. It bought building products maker Royal Group technologies for $1.6 billion in 2006. Congratulations if you recognize that this was the worst possible time for a company to increase its exposure to the housing market. The downturn didn’t bankrupt Georgia Gulf, but it came close. The company almost got delisted from NYSE when its market cap slipped under $75 million. It needed time from creditors for payments due. Moreover, a debt for equity swap amounted to a quasi-bankruptcy: shareholders were diluted, though not completely wiped out. 3) Strategically, this is a no-brainer for Westlake. Both are integrated chloro-vinyl companies. Westlake is integrated back into ethylene; Georgia Gulf isn’t. Both make fabricated products, with Westlake’s business oriented towards pipe and Georgia Gulf leaning towards window and door profiles. Westlake also makes polyethylene. Georgia Gulf has a cumene/phenol business. 4) Expect more to come. I would have to think that Westlake will follow with a tender offer. And given that the stock is trading at above $30 per share, I would expect to see Westlake sweeten the deal somewhat. I’m not terribly sure if the bid makes it into the courts or to a proxy fight. 5) Georgia Gulf is preparing a defense. Westlake already owns about 4.8% of Georgia Gulf. A poison pill, in the form of a rights offering to Georgia Gulf shareholders, will prevent Westlake from owning more than 10%. 6) Georgia Gulf had a staggered board until 2010. A staggered board means that not all of the directors are up for reelection every year. Now, Georgia Gulf directors are up for election when their term ends. By my reckoning, Georgia Gulf has five of its eight directors up for reelection later this year. Three will serve until 2013. This might present an opportunity for Westlake to stack the board, depending on the nomination process. 7) I wouldn’t be surprised to see competing bidders. The last big takeover drama in the industry was Air Products’ run at Airgas. There were few potential suitors for Airgas. There may be more for Georgia Gulf. Mexichem...

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Coke Ups The PlantBottle Ante
Dec16

Coke Ups The PlantBottle Ante

Carnegie Hall sits on the corner of 7th Ave. and 56th St. in Manhattan. How does one get there? Well, as the old adage goes, practice. (The Chemical Notebook took X1 express bus from Staten Island.) Nothing quite says “making it” in music like playing Carnegie Hall for the first time. Something similar happened yesterday, only a couple of blocks away, at the Time Warner Center on Columbus Circle. Three startup firms held a joint press conference with the biggest brand name of them call, The Coca Cola Company, to announce a collaboration in what has become one of the biggest challenges of the plastics industry: a wholly renewable polyethylene terephthalate bottle. The three firms were Gevo, Virent, and Avantium. (I’m abusing the term “startup” a little bit by lumping Avantium in because, as chemists know, Avantium is a well-established name in high-throughput screening.) Coca-Cola has had a PlantBottle on the market since 2009. The bottle is made from polyethylene terephthalate, but it is a different kind of PET. PET is made via the condensation of ethylene glycol with purified terephthalic acid. The PET in the plant bottle uses bio-based ethylene glycol (EG) instead of petrochemical-based EG. As a result, the plant bottle is 30% renewable. Not to denigrate the PlantBottle, but the chemistry to get to bio-EG is straight forward: dehydrate ethanol to get ethylene and then convert ethylene into EO/EG via conventional routes. The other 70% to go to a 100% bottle is a different matter altogether. Making PTA–or its common petrochemical precursor, paraxylene, hasn’t yielded to biology too easily. These are far more complex molecules. More work needs to be done before such a route can be commercially viable: Hence, yesterday’s event. “We understand we can’t do it alone,” noted Rick Frazier, Coke’s VP of commercial market supply. “We need to work with partners.” He said Coke vetted about 30 companies with possible solutions. The three firms he shared the dais with were the ones that made the cut. The three companies have very different routes to bio-based PET. Virent has a catalytic process to turn sugars in a range of hydrocarbons, including PX. Gevo ferments sugar into isobutanol, which after subsequent chemical reactions, is transformed into PX. Its technology is easily retrofitted into existing ethanol plants. Cheap ethanol plants are plentiful. Avantium is the oddball of the bunch. It uses a catalytic process to turn sugar into furan dicarboxylic acid. This is condensed with ethylene glycol to make polyethylene furanoate. This is a polyester that, according to the Avantium, exceeds PET in terms of oxygen barrier and temperature performance. The polymer might seem like a...

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