Here is another article on the liquefied petroleum gas (LPG) market, a subject we have covererd several times on the blog over the last few months.
Below we discuss how the temporary supply constraints that have kept LPG tight this year look set to end, creating a very attractive feedstock option for higher-cost Asian cracker operators as they attempt to compete in an ever-more difficult environment.
By John Richardson
THE world is about to be hit by a flood of new liquefied petroleum gas (LPG) (propane and butane) supply, creating a big opportunity for higher-cost Asian cracker operators as they seek to survive in an ever-more competitive world.
An additional 20-30m tonne/year of LPG is due to come on-stream globally in 2008-2012, according to the Singapore-located cracker operator, Petrochemical Corp of Singapore (PCS).
This could lead to 5-10m tonne/year of extra LPG consumption by the petrochemicals industry if the pricing incentives are right, the company added.
“Europe has gone as far as it can in taking advantage of the LPG opportunity, but Asia is only just waking up to the need to be more flexible with some investments in the region taking place over the last 18 months,” said Paul Hodges, chairman of UK-based chemicals consultancy, International e-Chem.
Source of picture: Bombayharbor.com
Some South Korean, Japanese and Singapore cracker operators have already invested in the furnace adaptations and storage facilities necessary to make use of LPG – but many other producers lag behind.
“LPG normally becomes attractive as a cracker feed when its price is around 90% of the naphtha price,” added Hodges.
Traditionally, this has been in the summer months in the northern hemisphere when LPG pricing falls due to lack of demand for heating.
The anticipated oversupply of LPG is the result of the ramp-up in liquefied natural gas (LNG) and condensate capacity in the Middle East, said oil and gas consultancy, FACTS Global Energy.
The capacity flood should have, in fact, already arrived by now, but this year has seen a surprisingly tight global market.
Lower LPG production by refineries – the result of oversupply in refinery capacity – is one factor behind the tightness.
Middle East petrochemicals demand for propane and butane has also increased due to a change in feedstock mix.
Recently commissioned gas crackers are running a higher percentage of LPG feedstock than plants that were brought on-stream earlier on because of shortages of ethane.
In addition, Saudi Arabia has seen the start-up of three propane dehydrogenation-to-polypropylene (PP) complexes over the last 18 months.
But by far the biggest factor behind delays in the LPG supply surge is reduced operating rates and maintenance shutdowns at LNG plants, added FACTS.
“It should be noted that this will be temporary and in the longer term, the LNG mega-trains will be strongly required to ramp-up their production to avoid any damage to project economics,” wrote the consultancy in a recent report.
LNG production has been reduced because of the same problem afflicting the refinery sector: A lot of new capacity came on-stream just as the economic crisis happened, with the LNG industry facing the added problem of the shale-gas revolution in the US. This has left the States unexpectedly self-sufficient in natural gas and even, possibly, in a position to export rather than import gas.
In Qatar alone, total LPG and condensate production will surpass that of crude oil by 2012, added FACTS in the same report.
Of course, though, cheap feedstock for the smaller, older and therefore more marginal cracker operators in Asia won’t by itself be a game-changer.
“Cracking propane and butane changes cracker yields,” said a Southeast Asian cracker feedstock purchasing manager.
“As a result, a careful balancing act will need to be performed between savings on raw-material costs and what these different yields will mean for polyethylene (PE), polypropylene (PP) and other olefins derivative production.
“One obvious opportunity from using LPG is increased propylene yields. This might help what could be tight C3 markets over the next few years.”
Propylene supply has tightened in recent months as a result, of again, lower availability from refineries.
Other factors have been low liquids cracking operating rates in Europe on lack of naphtha availability (again because of problems in the refinery industry) – and US cracker operators switching to lighter feeds due to the collapse in natural-gas pricing.
A further reason has been the boom in polypropylene (PP) production due to strong demand growth for the polymer.
The shortage of C3s is seen by some industry sources as a serious and long-term problem. Unless it is addressed they worry that PP could suffer from demand destruction.