World's Most Crucial Chemical Suddenly in Short Supply on Harvey
(Bloomberg) -- Few Americans care about ethylene. Many have probably never heard of it.
As it turns out, this colorless, flammable gas is arguably the most important petrochemical on the planet -- and much of it comes from the hurricane-stricken Gulf Coast. Ethylene is one of the big reasons the damage wrought by Hurricane Harvey in the chemical communities along the Gulf of Mexico is likely to ripple through U.S. manufacturing of essential items from milk jugs to mattresses.
"Ethylene really is the major petrochemical that impacts the entire industry," said Chirag Kothari, an analyst at consultant Nexant.
Texas alone produces nearly three-quarters of the country's supply of one of the most basic chemical building blocks. Ethylene is the foundation for making plastics essential to U.S. consumer and industrial goods, feeding into car parts used by Detroit and diapers sold by Wal-Mart Stores Inc.
With Harvey's floods shutting down almost all the state's plants, 61 percent of U.S. ethylene capacity has been closed, according to PetroChemWire. Production may not return to pre-storm levels until November, according to Jefferies.
Ethylene occurs naturally -- it's the gas given off by fruit as it ripens. But it also lies at the heart of the $3.5 trillion global chemical industry, with factories pumping out 146 million tons last year, Kothari said Thursday.
Processing plants turn the chemical into polyethylene, the world's most common plastic that's used in garbage bags and food packaging. When transformed into ethylene glycol, it's the antifreeze that keeps engines and airplane wings from freezing in winter, and it becomes the polyester used in textiles and water bottles.
Ethylene is an ingredient in vinyl products such as PVC pipes used to bring water to homes, life-saving medical devices and cushy sneaker soles. It helps combat global warming with polystyrene foam insulation and lighter, fuel-saving plastic auto parts. It helps commuters get to work safely when made into synthetic rubber found in tires. It's even an ingredient in house paints and chewing gum.
Man makes the chemical by starting with oil or natural gas, then steam heating it to 1,500 degrees Fahrenheit (816 Celsius) inside massive furnaces that crack apart the molecular bonds. The resulting ethylene gas is separated from co-products such as propylene, and then piped to other production units for conversion to a vast array of products.
Ethylene and its derivatives account for about 40 percent of global chemical sales, said Hassan Ahmed, an analyst at Alembic Global Advisors. The U.S. accounts for one of every five tons on the market, and ethylene plants globally were running nearly full out to meet rising demand before Harvey, he said.
"So any little hiccup -- and this is much beyond a hiccup -- will dramatically tighten supply-demand balances,'' Ahmed said Thursday.
While Gulf Coast chemical plants are designed to withstand hurricane-force winds and floods, Harvey has thrust the industry into uncharted territory. Ethylene producers hit by the storm along the Texas Gulf Coast include LyondellBasell Industries NV at the southern end in Corpus Christi, Exxon Mobil Corp. in Baytown outside Houston, and Chevron Phillips Chemical Co. in Port Arthur by the Louisiana border.
Market Havoc
"The combination of Harvey's path, duration and rainfall total is wreaking havoc with the supply side of the U.S. chemicals industry on an unprecedented scale," said Kevin McCarthy, an equity analyst at Vertical Research Partners. "We certainly haven't seen anything quite like it in our 18 years of following chemical stocks on Wall Street."
The sudden dearth of ethylene and other materials is being felt up and down the supply chain. More than half of the country's capacity for making polyethylene plastic has been shut down in the past week. More than 60 percent of production of polypropylene -- another plastic, has been curtailed.
12
View Full Article
WHAT DO YOU THINK?
Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.
- Falcon Oil Declares Commercial Flow Test Results for Shenandoah Well
- Macquarie Strategists Expect Brent Oil Price to Grind Higher
- Japan Failing to Meet Corporate Demand for Clean Power: Amazon
- UK Oil Regulator Publishes New Emissions Reduction Plan
- Pennsylvania County Joins List of Local Govts Suing Big Oil over Climate
- PetroChina Posts Higher Annual Profit on Higher Production
- McDermott Settles Reficar Dispute
- US, SKorea Launch Task Force to Stop Illicit Refined Oil Flows into NKorea
- Russian Navy Enters Warship-Crowded Red Sea Amid Houthi Attacks
- USA Commercial Crude Oil Inventories Increase
- New China Climate Chief Says Fossil Fuels Must Keep a Role
- Oil Demand Outpaces Expectations, Testing Calculus on Peak Crude
- House Passes Protecting American Energy Production Act
- TotalEnergies Restarts Production in Denmark's Biggest Gas Field
- USA Oil and Gas Job Figures Jump
- Republican Lawmakers Say IEA Has Abandoned Energy Security Mission
- Blockchain Demands Attention in Oil and Gas
- Houthis Warn Saudi Arabia of Retaliation If It Backs USA Attacks
- Macquarie Sees USA Oil Production Exiting 2024 at 14MM Barrels Per Day
- Summer Pump Prices Set to Hit $4 a Gallon Just as Americans Hit the Road
- New China Climate Chief Says Fossil Fuels Must Keep a Role
- Chinese Mega Company Makes Major Oilfield Discovery
- VIDEO: Missile Attack Kills Crew Transiting Gulf of Aden
- Norway Regulator Blasts Proposal to Halt New Oil and Gas Permits
- Chinese Mega Company Makes Another Major Oilfield Discovery
- What Is the Biggest Risk to Offshore Oil and Gas Personnel in 2024?
- Vessel Sinks in Red Sea After Missile Strike
- Exxon Rights in Stabroek Do Not Apply to Hess Merger with Chevron: Hess
- Equinor Makes Discovery in North Sea
- Analysts Reveal Latest Oil Price Outlook Following OPEC+ Cut Extension