Petrochemicals market braces for Hurricane Harvey aftermath
In a public comment on the expected impact of Hurricane Harvey to NGL and petrochemicals, Wood Mackenzie said that the loss in demand and storage limitations will affect NGL prices.
The Memorial Day flood of 2015 massively impacted NGL prices and curve structure due to floodwater-led storage constraints. Propane traded at a record low 24% of WTI, and traders paid an astounding 5 cents/gal for 1 mos of LPG storage space.
Ethane has the biggest risk for a 10%–20% price collapse from Harvey, as inventories persist over 50 MMbbl while nearly half of total ethane demand is offline.
The impact of Harvey is the loss of 7%–9% of the global ethylene capacity base, Wood Mackenzie said. Most steam cracker complexes in the US have also stopped production at downstream derivatives (polyethylene, PVC, etc). This largely contains the impact on pricing and volumes to within the US value chain.
Global olefins and derivatives markets were in a relatively tight spot heading into the event, with the market bracing itself for the startups of Dow Chemical Co.'s LHC-9 steam cracker unit and Enterprise Products Partners' propane dehydrogenation unit (pictured) in the 3Q 2017. Any delays to the start of these units will extend the current period of strong margins.
Most of the US paraxylene (PX) assets are located within refineries impacted by Hurricane Harvey. None of the North American PX consuming assets are impacted, so the worry for regional consumers will firstly be in securing supply and, subsequently, that US PX prices may spike in September if the outages are prolonged.
Around 30% of total US benzene capacity is offline at present, but the upward impact of these outages on pricing has been mitigated by various derivative outages.
Combined with the loss of ethylene capacity, US styrene output has also been significantly affected by Harvey. With the US acting as a key global exporter of styrene, the impact on logistics and freight movements is also expected to ripple through the global markets over the coming weeks.
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