Eastman Not Closing Ethylene After All

Here’s a sign that the U.S. petrochemical industry is becoming more competitive: Eastman Chemical has reversed a decision to close ethylene capacity at its Longview, Texas, complex. Eastman had been running four ethylene units at its Longview complex: one with about a billion lb of annual capacity of olefins; another two with a half million lb of capacity apiece; and another cracker, older and smaller than the others. In 2007, following the sale of its polyethylene business to Westlake Chemical, which remains a customer of Eastman’s Longview ethylene, Eastman decided to shut down the three smaller units at the site. It closed the smallest unit in 2007 and one of the half-million-lb units in 2008. However, it never closed the other half million lb unit and it now plans to bring the cracker that it closed in 2008 back in service by the first quarter of 2011. Earlier this month at the JP Morgan Diversified Industries Conference, CFO Curt Espeland said that fortunes have turned around for the Longview units. These plants use mostly propane as a feedstock and turn out a lot of coproduct propylene. The plants have benefitted from the abundance of shale gas in North America, which has kept prices for light, natural gas feedstocks low. “Propane in North America is expected to be pretty available and advantaged on a cost basis compared to the naphtha crackers,” he said. Also, Espeland expects the propylene market to remain tight. North American crackers are favoring lighter feedstocks, namely ethane, and are thus producing less propylene. Refineries, which have been running at low rates because of a cruddy gasoline market, have also been putting out less propylene. Now, I am not 100% certain about whether Espeland means that propane is available because of abundant supply as a natural gas liquid or because other ethylene crackers are opting to go as light as they can, using ethane instead of propane as a feedstock. In either case, other companies are going after propane/propylene arbitrage as well. For example, pipeline firm PetroLogistics is repurposing an ExxonMobil ethylene cracker it purchased a couple of years back into a propane dehydrogenation plant. It plans to start up this summer.

Author: Alex Tullo

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