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Global oversupply behind BASF’s delay on Texas propylene plant: analysts

Growing supplies in the global propylene market led to BASF delaying its decision on a planned methanol-to-propylene plant in Freeport, Texas, analysts said Tuesday.

The unit with 475,000 mt/year of propylene output would mark the first methanol-to-propylene plant in the US, but the company said Monday it delayed the investment decision planned for this year due to “the current volatility of raw material prices and the prevailing economic environment.”

“[There is] too much propane [in] the US, too many [propane dehydrogenation] projects in that environment, MTP is too expensive,” HSBC analyst Sriharsha Pappu said.

According to S&P Global Platts data, North America PDH capacity is to increase to 2.8 million mt/year in 2018 from around 500,000 mt/year in 2013. Asian PDH capacity is expected to increase to 10 million mt/year from around 2.5 million mt/year in 2013.

Meanwhile in Asia, China has seen significant expansion of methanol-to-olefins capacity, with 13 MTO and MTP plants with an annual methanol consumption of 12 million mt/year. The country should see the startup of an additional four plants this year with a combined methanol consumption of 6.5 million mt/year.

Propylene is traditionally produced as a byproduct of steam crackers, which take in feeds such as naphtha and LPGs for the production of ethylene.

However, alternative on-purpose production has been seen where needed, which include PDH and coal/methanol to propylene. Another traditional source of propylene has been as a byproduct of fluid catalytic cracking units in refineries.

The US and Asia have led the wave of investment in PDH capacity expansion, expecting higher growth of the propylene value chain versus the ethylene value chain and the lack of future supply coming from traditional routes, namely co-product cracking amid increased ethane cracking in the US.

PROPYLENE YIELD FROM REFINERIES RISES

Joe Pilaro of New York based-consultancy BRAE Partners said the economics of the BASF project are uncertain because of the conditions in the US shale gas business (leading to increases in propane supplies) and the increased production of refinery propylene.

“I believe that gasoline demand in the US is on the rise because prices are the lowest they have been in over five years just when people are setting summer holiday plans. Refineries are increasing gasoline production and that results in an increase in propylene output,” he said.

Pappu added that some of the increase in propylene supplies in US and globally was amid “higher refining run rates,” leading to higher propylene production.

Lower gasoline prices bringing increased gasoline demand has, in turn, resulted in higher refinery-grade propylene. The rise in production helped contribute to higher inventories early this year.

Propylene stocks for non-fuel use were at 3.859 million barrels for the week ending May 27, EIA data showed. Stocks have climbed 22% since the beginning of the year where they were at 3.152 million barrels.

US propylene markets generally move in unison. RGP is sourced from refineries and can be further purified into PGP, or it can be used in the production of alkylate, a high-value gasoline blendstock.

PROPYLENE PRICE STUMBLES

Propylene prices have been steadily falling since 2014 amid capacity additions and falls in crude.

Propylene spot prices have averaged $647/mt FD USG, $687/mt CFR China and $620/mt CIF NWE across 2016. In comparison, these averaged over double through 2014 at $1,500/mt, $1,348/mt and $1,432/mt, respectively.

EUROPEAN CAPACITY LAGS

In Europe, no new capacity has been seen of late. Supply had lengthened on attractive import offers from the growing supply regions of Asia and the US as well as strong domestic refinery run rates.

“I think refineries had really good run rates in past months and therefore we had good propylene production and the supply buildup,” a European trade source said.

Grupy Azoty said in 2015 it planned to build a 400,000 mt/year PHD plant at Police, Poland, by 2019.

“We will examine the case closely from the side of the technology and market competitiveness. At this stage we do not change our approach to our investment,” a company spokeswoman said Tuesday.

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