Posted on 03/25/2015 4:35:50 AM PDT by thackney
North American chemical companies have seen their revenues slip with the plunging crude price, but they aren’t expected to abandon the billions worth of expansions they announced when profits were higher, a new report finds.
Petrochemical companies have enjoyed deep discounts on the oil-based naptha and natural gas liquids they use to power their plants since the price of oil has collapsed in recent months, but chemicals they manufacture have also been selling for cheaper, eroding their margins, according to a new report by Standard & Poor’s Ratings Services.
Ethylene, a key building block for plastics, now fetches 35 percent less than it did during its peak in the third quarter of last year, the analysis said.
In the most recent earnings calls, three major U.S. chemical giants — Dow Chemical Co. LyondellBasell and Westlake Chemical Corp. — all reported weaker margins, a trend they expected to continue, the report found.
Despite the diminishing profits, chemical companies are expected to continue to follow through with a slate of new expansions announced after the U.S. shale boom flooded the market with vast quantities of cheap natural gas, Standard & Poor’s says.
“Although the weaker outlook has forced companies to adjust their expectations of returns on these investments, we don’t expect significant delays or cancellations of projects already underway,” the report says. “While returns will likely be weaker than initially expected, we believe conditions will remain favorable enough to support this additional capacity, scheduled to come online by 2018.”
Westlake Chemical Corp. in October said it would launch a $330 million expansion of its complex in Lake Charles, La. producing ethylene. Dow Chemical in June broke started construction on a $1.7 billion plant in Freeport with the capacity to make 1.5 million tons of ethylene per year. Chevron Phillips Chemical last year said it would expand ethylene production by 200 million pounds with the construction of a tenth furnace at its Sweeny complex. And Occidental Petroleum Corp. last year started construction on a new cracker that’s a joint venture with Mexichem.
The report cautions that the outlook isn’t so optimistic if prices don’t pick up, saying that companies may refrain from making future investments.
Still, North American chemical producers continue to remain competitive against their global competitors thanks to their easy access to low-cost feedstock, the Standard & Poor’s report said. Ethane, which is used to make ethylene, is abundant and cheap, giving domestic plants an advantage over their international counterparts which use oil-based naphtha to produce chemicals. Expect North American chemical plants to continue running near peak capacity, the report said.
The key here is that a large portion of new production is extremely rich in C3-C8+. Permian gas wells are showing ^up to^ 40% of C3+. Mont Belvieu terminus is gong gang busters.
Add to that production proposed in 2014 for 2015-and-beyond activity. The feedstock end of the business is still viable.
That is A LOT of Saran Wrap, brother!
Yep, that is where I'm working these days.
I’m hoping to get a gig with one of the in-coming pipelines. Might have to re-lo to the Midwest.
I know that the incoming to MB has increased as more wet-gas from the Permian has been introduced. To my knowledge, the expansion is increasing. Check out production numbers for Indian Basin going through Maljamar. Wish I had a piece of that...
Also from the Eagle Ford. There is a lot of Nat Gas Liquids coming from there.
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