Asia Petrochemical Makers Increase LPG Use Amid Large Discounts to Naphtha

(January 2, 2017) — Rising propane exports from the U.S. at large discounts to naphtha are pointing to the increased use of LPG for Asian petrochemical production in 2017, according to www.argusmedia.com. U.S. LPG supplies to the global market have surged since late 2015 as new export terminal capacity has been developed. U.S. producer Enterprise Product Partners expanded its LPG export terminal in the Houston Ship Channel from 9.3mn t/yr to 15.5mn t/yr in late 2015, while Phillips 66 has brought on line a new 4.6mn t/yr LPG export terminal in Freeport, Texas. The rise in supply has come in tandem with a surge in new deliveries of very large gas carriers (VLGCs), leading to shipping oversupply and a collapse in LPG freight rates. The Mideast Gulf to east Asia freight rate has fallen from around US$90/t in September 2015 to under US$20/t, while rates from the U.S. Gulf Coast to Asia have dropped from U.S. $170/t to around US$50/t over the same period.

Many Asian naphtha crackers are capable of using LPG to replace around 10-15% of naphtha, which is the established feedstock. The switch usually occurs when LPG prices are at an 8-10% discount to naphtha and cracking economics are favorable. Such discounts were typically only available during the summer months, when fuel and heating demand for LPG declines. But historical seasonal price trends are disappearing amid the glut of LPG supplies from the U.S. LPG has traded at an average 10-27% discount to CFR Japan naphtha values in 2016, attracting interest from petrochemical producers that are looking to increase the use of LPG in their feedstock slate.

South Korean cracker operators such as YNCC, LG Chemicals and Lotte, together with private-sector Taiwanese firm Formosa, have all maximized LPG cracking in 2016. Even smaller crackers in southeast Asia such as JG Summit in the Philippines have bought spot LPG cargoes to supplement their naphtha feedstock. Japan’s Idemitsu Kosan and Mitsui Chemicals have announced plans to invest in expanding propane cracking capability at their 920,000 tpa cracker in Chiba, underscoring Asian cracker operators’ continued interest in LPG.

Investments in maximizing LPG cracking have been slow to emerge in Asia, as significant differentials to naphtha had not materialized before this year. A structurally long naphtha market amid lower crude prices had also kept cracking margins robust. But market participants in Asia-Pacific are expected to gradually follow the lead of their counterparts in western Europe, where cracker modifications have enabled increased LPG cracking. Nearly 40pc of European ethylene is now produced from LPG.

Growing interest in LPG — mostly propane — as a petrochemical feedstock is also emerging from Chinese propylene producers that use propane dehydrogenation (PDH) technology. There were 11 PDH plants in China with total propylene capacity of 5 mln tpa as of Nov. 2016, with another 850,000 tpa of new production scheduled to start this year. This implies 5.2 mln tpa of propane demand, assuming average operating rates of around 75% at the PDH plants.

PDH facilities are also being built in the Mideast Gulf. Abu Dhabi’s state-owned Adnoc is due to start a 500,000 tpa PDH unit in Q3-2017. And Iran has at least 3 PDH plants at Mehr Petrokemiya, Salman-e-Farsi and Kharg, each with 450,000 tpa capacity, in various stages of construction. The start-up dates for these plants are unclear, but Iran is net short of propylene and maintains strong interest in building new PDH capacity to feed its downstream polypropylene units.

Strong growth in polypropylene demand in Asia, which is increasing at double-digit percentage rates in both India and China, continues to drive demand from the region as a whole.

(SOURCE: Argus Media)