US polyethylene inventories set to rise by 9bn pounds in 2016-2020

Rapidly growing U.S. ethylene production and investment in new polyethylene (PE) capacity will increase North American PE production to more than 54 billion pounds by 2020, up from about 44 billion pounds in 2015 as supply grows faster than domestic demand, according to Petrochemical Update’s US Polyethylene Export report released in May 2017.

U.S. PE production will exceed domestic demand, adding up to 6-9 billion pounds of excess inventory for export through 2020. Photo: Port of Houston

An additional 2 billion pounds of PE capacity could be added over this time frame pending final investment decisions.

PE production will exceed domestic demand, adding up to 6-9 billion pounds of excess inventory for export through 2020, assuming 75% of the announced projects start up on time. 

The added supply will create opportunities over the next decade for North American companies to export their excess supply to regions like China, Africa and India.

U.S. Competitiveness

Abundant and cheap supply of U.S. natural gas liquids (NGLs), a group of hydrocarbons that includes ethane, propane, butane, isobutane, and pentane, from shale formations drove petrochemical investments.

Ethylene, the precursor to PE, is most commonly produced via steam cracking of NGLs, steam cracking of naphtha, or catalytic cracking of gas oil.

U.S. crackers mostly use NGLs, primarily ethane and propane, as feedstock to create ethylene and derivatives including PE. Products are traded globally and priced off crude oil which is the main feedstock for much of the world’s ethylene and derivatives production.

Derivative Share of U.S. Ethylene Capacity

Source: Petrochemical Update

"The cost differences between North America’s ethane crackers and international reliance on naphtha crackers has created the potential for exports for U.S. produced ethane, ethylene and polyethylene,” Tim Rhoads of the Professional Logistics Group said.

U.S. ethane production is outpacing expected U.S. demand growth and the ethane production surplus is projected to reach nearly 700,000 barrels/day by 2020, according to Petrochemical Update.

“Additional investment in U.S. ethane crackers will add nearly 20 million pounds of additional ethylene capacity and as a result, total ethylene capacity will outpace domestic demand for ethylene derivates,” Rhoads said.

“Cracker-plus” Projects

Four crackers totaling more than 5 million tonne/year of ethylene capacity are slated to start operations this year along the U.S. Gulf Coast. Five more are under construction and expected to begin operations before the end of 2019.

Some 10.3 million tonnes of ethylene capacity will enter the U.S. market before the end of 2019.

Most of the new plants under construction are cracker-plus projects, and the plus usually includes a polyethylene plant.

New U.S. Ethylene and Derivative Capacity

Source: Petrochemical Update

“But one of the odd facts about this cracker-plus boom is that the US already has too many PE plants, at least for the domestic market,” said Lane Kelly, Senior editor at ICIS.

“American PE producers already make more than they can sell here, so they discount the resin and move it offshore, with PE exports accounting for roughly 20% of sales in any given month.”

“With 48 PE plants currently operating in the US, that means 10 of them are for export-only, and that’s not counting four more (ExxonMobil, Dow, CP Chem and INEOS/Sasol) that will most likely be running by this time next year,” he added.

PE exports accounted for 23% of sales in 2016, Kelley said. LyondellBasell CEO Bob Patel expects the PE export share to rise to 30% or higher in the near future because of the new plants.

In 2015, the chemical manufacturing sector had $184 billion in exports, accounting for 14% of all U.S. exports. According to the American Chemistry Council (ACC), chemical industry exports are expected to increase an average of 7% through 2021.

Exports of chemicals linked to shale gas are projected to reach $123 billion by 2030, notes ACC, more than double the total in 2014. That will drive the trade surplus from these chemicals to increase from $19.5 billion to $48.3 billion by 2030.

Export Destinations

ExxonMobil’s two new 650,000 tonne/year PE units will be 100% dedicated to exports because there is no railcar access to the plants, according to an earnings conference presentation.

An executive at CP Chem recently said that the plan is to initially export about 30-50% of the two new 500,000 tonne/year PE units in Texas with the export percentage eventually shrinking to 20%.

“Industry wisdom at this point holds that PE producers will have to export at least 40-50% of their new resin,” Kelley said.

Largest ethylene importing countries

Image Source: Petrochemical Update. Data Source: International Trade Centre

While Latin America has been the traditional export destination for U.S. polyethylene, experts believe that demand there will not be substantial enough to handle the amount of material available.

“Even if North American producers grow their current share of that market (Latin America) to 100%, the region will still only absorb roughly one third of the annual PE surplus expected by 2020,” according to a 2016 report by Accenture. “Which means that those producers will still have to turn to other export markets to find a home for millions of tons per year.”

Northwest Europe, Brazil, South Korea, and China will provide the best export opportunities, based on regional demand-supply imbalances and US total supply cost competitiveness.

“As new U.S. polyethylene capacity comes on line in 2016 and beyond, the U.S. will become a significant net exporter of polyethylene and put pressure on the international polyethylene supply/ demand balance,” Rhoads said.

Export preparations

Logistics infrastructure investments and improvements to support the significant increase in polyethylene container transport from the U.S. are focusing on the required additional shipping container, product packaging and container loading capacity.

“The expansions of the Panama Canal, container ports, and the container vessel fleet have been underway for several years and the transport of containerized polyethylene leverages on-going container shipping developments,” Rhoads said.

Rail packaging centers are being built as a response to what most polymer experts see as a coming boom in polyethylene exports, according to Kelley.

Hillwood, BNSF Railway Company (BNSF) and Packwell have agreed to build a plastics export packaging facility at the Alliance Texas industrial and distribution park.

A similar plastics packaging and export facility has been built by the Union Pacific railroad and global logistic firm Katoen Natie (KTN) in Dallas, Texas.

Both facilities will transport plastic pellets in hopper cars from the US Gulf Coast – and mostly from the Houston area – to sites in Dallas-Fort Worth where the pellets will be packaged and transferred into shipping containers that will travel by rail to the US west coast for shipment to Asia.