Spend Matters welcomes another guest post from Jara Zicha of Mintec.
In July, ethylene prices climbed to the highest level seen for a couple of years, primarily driven by tight supplies. Ethylene is produced from crude oil or the natural gas derivatives naphtha and ethane. The price movements we are currently experiencing are less around the hydrocarbon markets and are more based on what is happening in the marketplace.
The tightness in supply has been caused by production outages and delayed start-ups at several producing facilities in the US Gulf states. A fire at the Chevron Phillips, Port Arthur production unit in Texas, with a capacity of 830,000 tonnes per year, further exacerbated the issue. It is not known when the facility will re-open.
Due to the outages in ethylene production, the price of polyethylene (PE) has increased. In July, PE demand stood at 2.74 billion pounds, 160 million pounds above the 12-month average and the highest level since August 2012.
With decreased levels of capacity for ethylene conversion, there has been a noticeable impact on the feedstock ethane. Ethane production has been growing steadily due to the shale gas boom resulting in oversupply and lower prices. Production averaged 1.0464 million barrels/day in May 2014, an increase of 12.8 percent (139,000 barrels/day) on the same period last year.
Gulf Coast ethane prices fell to 22.00 cents/gallon in mid-August, a 19-month low. The average annual ethane price at the Mont Belvieu hub in Texas was assessed at 26.00 cents/gallon in 2013, down from 39.75 cents/gallon in 2012.
Ethylene prices are expected to retreat from their highs once the planned and un-planned outages are resolved and the production facilities come back on-line. Additionally, there are currently several ongoing capacity expansion projects which have been scheduled for start-up in 2014/15 which are forecast to add around 3.4 billion pounds of ethylene capacity per year.