Asian petrochemical firms that have invested in building crackers to convert US ethane into ethylene are now facing squeezed margins due to rising prices of the hydrocarbon. These crackers are designed to process US ethane, to make them more competitive than rivals which use more expensive oil-based naphtha.
The popularity of ethane as a petrochemical feedstock rose as NGLs production in the US soared to more than 5 million from less than 2 million at the start of 2010. Petrochemical companies invested $185 billion in new processing facilities to take advantage of the abundant ethane. Ethane is also exported to Asia and Europe where ethylene is typically made of naphtha.
As SSESSMENTS.COM noted, India’s Reliance Industries Ltd. became the first Asian producer to use US ethane. It invested more than $1.6 billion to process US ethane in 2017. The company had enjoyed the ethane advantage over the last two years when naphtha costs were higher. SP Chemicals Holdings Ltd. started its own cracker last year in China. Meanwhile, Zhejiang Satellite Petrochemical Co. aims at starting a new 1.25 million tons/year ethane cracker in the first quarter of 2021 and the second unit of similar capacity is scheduled for 2022.
However, these companies are now facing squeezed margins as ethane prices increase amid supply decline and growing demand from US processors. At the same time, benchmark naphtha prices in Asia fell 35% year-on-year thanks to the collapse in oil prices. Industry sources told SSESSMENTS.COM that benchmark ethane prices in Mont Belvieu would likely average around 20 cents/gallon in 2020 and about 25 cents/gallon in 2021. US NGLs output is expected to decline as producers cut spending amid low oil prices. It is forecast to bounce back in 2021, but unlikely to regain fully to its previous levels.
