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, we believe that, provided Sunoco continues to supply us until June 2012 or we are successful in sourcing additional feedstock supply, the operations and capacity utilization of our Marcus Hook, Pennsylvania plant will not be materially affected,” the company says. The company also raised the prospect of delivering to customers from other plants.
One wrinkle for the Braskem is the Philadelphia refinery. Sunoco is seeking a buyer for that refinery as well. If it can’t, Sunoco is planning to idle it by this summer as well. That would limit Braskem’s options a bit. But maybe Petrobras or PBF Energy or someone else will buy the refinery or something. I do hope that Braskem finds a way to keep the polypropylene unit running.
There seems to be propylene issues at the plants it purchased from Dow in Seadrift and Freeport, Texas. A propylene supply agreement, presumably from Dow, is set to expire in 2013. Dow will likely use that to make its own propylene oxide, acrylic acid, and epichlorohydrin. Braskem, however, probably has more options on the Gulf Coast than it does in the Northeast.
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