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Argus Summit: NGLs volatility favors flexible crackers

18 Jan 2018, 10.28 pm GMT

Argus Summit: NGLs volatility favors flexible crackers

Houston, 18 January (Argus) — Naphtha cracking margins have eroded to favor lighter feedstocks for US steam crackers after the shale boom in 2011.

But NGL price volatility has intermittently favored flexible crackers that sustain steady feedstock for aromatics as well, according to experts at the Argus Americas LPG Summit in Houston, Texas.

Initial margin estimates for ethane to olefins production have narrowed since announcements to build new steam crackers in the US were made to consume ethane from shale plays. In fact, since late 2016, NGL prices have narrowed to nearly at parity or switched from ethane as the advantaged crack at least twice, giving way to advantages for the flexible cracker.

Overall, the general trend is a switch to a lighter feedslate to produce ethylene in the US.

"US LPG has been cheaper in the past several years, so US crackers are shifting toward lighter feeds. This is beginning to happen in Europe and starting in China because they now have the logistics to important LPG and use that as feedstock," Paige Morse, Argus vice president of propylene and derivatives, said today.

In 2017, US refiners returned to using naphtha as a feedstock, despite the recent preference and reconfiguring to process tight oil and ethane. The switch was prompted by significantly lower naphtha prices, assessed at a four-month low of $374/t on 23 June per Argus data, which became competitive with NGLs. As a result, in the summer of 2017 benzene, toluene and mixed xylenes prices held at an eight-month lows because of additional feedstock from refiners, according to Argus data.

"LPG and naphtha were higher with petrochemical demand. The US was running low on propane inventories, so petrochemical producers took naphtha because propane was so high," Robert Campbell, Energy Aspects head of oil products research said.

Shale and tight oil drove the feedstock advantage in the US for ethane steam crackers. Eleven new crackers are poised to come online by 2020, a 40pc increase compared to 2017 to 42mn t/yr of production, Robert Sawchuck, business director at BASF-Total Petrochemicals, said.

"Lighter feeds don't help for heavy derivative production," Sawchuck said. "In 2016, feedstock prices converged and the ethane cracker margin assumption changed. In 2017 a similar situation occurred. Will North American economics justify a flexible cracker? I believe it's a matter of when."

Dow Dupont has the largest cracker flexibility in the US and continues to look for back integration opportunities. Some of its US crackers have the capability to switch from 100pc ethane to 100pc propane in one to two weeks.

"The way that petrochemicals bring value to the refiner is going to be looked at differently than it was in the past," Manav Lahoti, Dow Dupont business director, said.

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