The oversupplied US naphtha market will likely continue for the foreseeable future, but falling overseas consumption could begin to hurt exports to Europe and the Asia Pacific.
Healthy domestic gasoline demand may trim some of the naphtha excess, but this will be off-set by declining consumption in the petrochemical steam cracking naphtha market in the two regions, said Andrew Reed, principal at ESAI Energy, during the Argus Condensate and Naphtha Markets Conference in Houston today.
Naphtha demand from the Asia Pacific petrochemical sector is falling, with Europe set to follow. The European naphtha deficit is about 150,000 b/d for this year, but the North Asia deficit is anticipated to fall to less than 1.1mn b/d from a current 2.3mn b/d.
The Asia Pacific continues to be the largest consumer of US naphtha, with Europe following far behind. The top three naphtha consumers in Asia — Japan, South Korea and Taiwan — are expected to undergo a net decrease in naphtha feedstock capacity amid changing economic and corporate structures. Some Japanese companies are expected to go through consolidation, which may result in a loss of 300,000 b/d in capacity, Reed said.
Ethylene production from steam crackers is expected to fall this year in Japan, South Korea and Taiwan. In Japan, naphtha demand was pegged at 800,000 b/d in 2015, but will drop off to 770,000 b/d in 2016 because of dropping ethylene capacity in the country. Lower combined naphtha deficits for Japan and S. Korea led to a reduction in imports from the US, Europe, Middle-east and India while Russian imports rose slightly in 2016, Reed said.
In Europe, cracking units have more flexibility than in the Asia Pacific, but this did not add to naphtha demand as US ethane displaced naphtha as a more economic option for cracking. US naphtha exports to Europe also decreased in 2016, compared to last year.
Latin America remains one of the primary export markets for US naphtha as the region is plagued by poor profitability leading to throughput cuts and ongoing refinery issues at many facilities in that region. Although US naphtha exports to Venezuela have gone down by approximately 50pc because of financial and credit issues, there is still an estimated 0.5mn to 1mn barrels headed to Venezuela each month.
Mexico continues to purchase one to two 270,000 b/d cargoes of heavy naphtha from the US each month. Mexico issued a tender to buy a late October cargo last week, adding to two cargoes that have already been awarded for October delivery in an earlier tender.
