Propane prices are cyclical, peaking during the winter and bottoming out during the summer, and propane/propylene spreads hit their lowest during the winter and their highest during the summer. After all, feedstock prices are the biggest component of production costs in this industry.
While last winter was an anomaly, due to the drastic drop in global oil prices impacting many commodities, propane prices dropped alongside other prices. This year we are seeing the return to normalcy regarding propane pricing, but at a time when Asia is seeing low propylene prices, margins have deteriorated, and PDH units are feeling the impact the most.
The South Asia propane/propylene spread has surged as a result of the unplanned shutdown at Shell’s steam cracker in Singapore. Shell Singapore issued a force majeure on propylene supply from its 960,000 mt/year steam cracker at Pulao Bukom during the first week of December. As a result of supply tightness in the region, the southeast Asia propylene price increased $25 to $650/mt, which caused the propane/propylene spread to increase to $225/mt.
After hitting a low during the first week of October, propylene prices have continued to rise, but stayed stagnant during the first week of November, when propane prices experienced a sharp rise, causing spreads to hit their lowest point in years at $30/mt.
Of all propylene producers aside from olefin conversion units (OCU), low propane/propylene spreads have the biggest impact on propane dehydrogenation (PDH) units.
As a result of more shale-based ethane being used as a feedstock in US steam crackers, the production of propylene has decreased from approximately 6.2 million mt to below 4 million mt in 2014, a 36% change. Ethane yields very little propylene — about 3% — compared to heavier feedstocks that yield between 15%-23%.
In China, there was much demand for downstream propylene derivatives such as polypropylene. Keen interest increase propylene production in the US and Asia means there were many PDH projects built over the last couple of years.
The PDH process removes two hydrogen atoms from propane and converts it into propylene. Propane is mixed with a hydrogen-rich recycled gas which is then fed into a heater in high temperatures (1000° F), then transferred into the rector in the presence of a metal catalyst (platinum) to be converted into propylene. The catalyst is continuously withdrawn from the reactor, regenerated, and fed back into the reactor bed.
The PDH process is straightforward: propane in and propylene out. As the process is simple, so are the economics, and PDH production is only viable in a region with low propane prices and high propylene prices.
Asia PDH capacity
Globally, propylene capacity through PDH in 2015 is expected be 13.8 million mt/year. The 660,000 mt/year Flint Hills Houston PDH plant was the only unit running in North America prior to November of this year. In late November, Dow completed its 750,000 mt/year PDH plant in Freeport. During the fourth quarter 2016, Enterprise is expected to startup their 750,000 mt/year plant in Mont Belvieu. By 2018, we expect Formosa’s 750,000 mt/year plant to come online at Point Comfort. Capacity in the US is expected to increase to 2.9 million mt.
Asia accounts for 72% of the world’s global capacity with 9.9 million mt/year. China produces 90% of Asia’s PDH propylene capacity or 9 million mt/year in 2015, and is expected to increase PDH propylene capacity to 20.6 million mt/year by 2020.
According to Platts editors, tight propylene supplies have been able to offset the drop in crude prices; however, propylene margins remain negative, and propylene supply may remain flat through the rest of the year. While there will be supply coming back online from residue fluid catalytic crackers (RFCC) unit restarts, there will also be removed supply as a result of a cracker outage and shut PDH plant.
JX Nippon Oil and Energy will be restarting two of its RFCC units soon: a 60,000 mt/year RFCC in Oita that was shut on Nov. 24 and a 100,000 mt/year RFCC in Sendai that was shut around Nov. 9.
In Taiwan, CPC is expected to restart its 400,000-450,000 mt/year RFCC at its Talin refinery by mid-December, but plans to shut its 193,000 mt/year No. 4 steam cracker in Linyuan on Dec. 12 for 50 days of annual maintenance. Also, Platts reported that Zhejiang Satellite plans to shut its 450,000 mt/year PDH plant in Zhejiang, China during mid-December.
Therefore, we don’t anticipate any changes to the Asia propylene supply/demand picture or its impact on the market, unless there is a delay in RFCC restarts or unexpected cracker outages. The latter can occur at any time considering the number of old facilities operating in the region.