Impact of shale plays on US aromaticsproduction and pricingPlatts US | January 10, 2013
Agenda • Benzene supply constraints support higher prices – Impacts derivatives production costs – Positive HDA, TDP margins • Toluene and the return of the driving season – Refiners may opt to raise reformer run rates • MX performing better than PX
Benzene: Supply cuts support higher prices• Production of benzene (as well as other aromatics) in the US seriously constrained by shift to lighter feed crackers and lighter crude slate.• Aromatics cracker output from switch to light feed in crackers down by ~55% with some suggesting that estimate is conservative.• Prior to shale oil, refiners were using a naphtha with a 40% naphthene and aromatics cut while that number drops to roughly 35% with lighter crude.• Total US aromatics lost on shale oil and light feed crackers estimated at roughly 20%• This is on top of refinery closures, outages seen in the face of hurricanes Isaac and Sandy, and planned and unplanned outages.
Further supply constraints• Sunoco shuttered Marcus Hook refinery in December 2011, which took out about 19kb/day of BTX out of the market.• HOVENSA shuttered it’s refinery in St. Croix in H2 February which had a capacity to produce 4,500 b/d of benzene, 5,800 b/d of toluene, and 4,000 b/d of MX, Other outages include: • BP – Texas City, TX - No1 FCC unit restarted on Jan 6 • Phillips 66 – Borger, TX – No 2 FCC unit under maintenance Dec 19 • Valero – Corpus Christi, TX – 6 week FCC maintenance starting in Jan • Valero – Texas City, TX – 8 week FCC maintenance to begin in Jan
Benzene derivative demand• Styrene – Higher benzene is pushing styrene values up and prices are expected to stay strong in the near term. This has killed arb opportunities. US was about mid 1600’s and CFR China is closest possible arb opportunity at about 1700 as of Wednesday but nothing moving.• Styrene producers are running at near 80-85% and if possible, they will re-inject whatever benzene they can back into the market when possible to try to bring down BZ costs and accordingly their production costs.• Downstream PS demand in the US lackluster and support comes from upstream BZ and to a lesser extent, ethylene. With PS prices high, seems some people in PS are looking for cheaper substitutes such as PP and PE.• Overall consensus seems to be that if US styrene or PS demand actually shows some serious signs of life, benzene prices could get up into the $6- 7/gal range (though I would think at $7 there would be some demand destruction.)
Mixed xylenes and paraxylene • Mixed xylene prices showed significant strength in the latter part of 2012 and TDP were stronger than MSTDP. On November 26, MSTDP margins fell below TDP margins. • This would seem to suggest that mixed xylene strength is greater than paraxylene though MX arb to Asia shut in late November. Exports from US to Asia lower according to EIA data and US producers would have to export more than 80kt/month to keep volumes level. • Higher MX prices make MX unattractive as a blendstock. • Value in xylenes chain was seen in mixed xylenes in H2 2012 as evidenced by both exports and TDP margins and then by PX demand to close out the year.
US toluene imports most prevalent in summer• Spring and summer are the periods where most imports to the US would be feasible – 90000 during the past two years. The 80000 increased profitability of 70000 imports to the US from Asia in 2012 during the summer 60000 months could have been 50000 absorbed by blenders – or fed 40000 into the chemical process. 30000• There has only been a brief 20000 period of exports from the US 10000 during the past two years. If chemical and blend demand 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct continue to pick up in 2013, the US could be in a position to absorb more foreign material.
US MX exports surge in Q3 - EIA 80000 70000 60000 50000 40000 30000 20000 10000 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct 15
Paraxylene and derivatives • US domestic paraxylene demand somewhat lacking on weak demand from downstream sectors. • PTA demand in the US remains relatively lackluster due to soft downstream PET demand. At the same time, prices remain high. • Participants anticipate that PET demand will pick up in March and April when the bottling season in the US begins. • Though PET demand is weak, participants anticipate an uptick of 2-3 cents on the January contract as a result of higher xylene prices. • So where is the PX going? For non-integrated producers, exports to Asia are not economically viable however integrated producers still can make decent margins in the short term. 16
US paraxylene export stats - EIA 180000 160000 140000 120000 100000 80000 60000 40000 20000 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct
Conclusions • The primary issue facing the US BTX markets is the reduction of aromatics output by refineries and steam crackers. • The ~20% decrease has bolstered pricing across the board, often at times when derivative demand did not justify higher values. • With US production expected to reach close to 8 million b/d in 2014, relevant questions might consider how much will increased crude production in the US going forward help to negate losses from shale? • What will the impact of PTA and PX capacities in Asia be on the US market in the near term. Long term this will drive US xylene demand.