Global investment in ethane crackers and other olefins units will lead to overcapacity and intensifying inter-fuel competition in the NGL and naphtha markets, according to ESAI Energy's newly published Global NGL Five Year Outlook. As ESAI Energy describes, announced projects include a potential 58 million tons of ethylene capacity, far more than global ethylene demand can plausibly grow. However, a closer look at what will pan out leads to the unmistakable conclusion that feedstock demand growth and pricing will be less bullish than many believe.
As ESAI Energy's five-year outlook describes, a portion of announced new capacity will be postponed or scrapped altogether. For example, four newly announced U.S.-fed ethane crackers in China raise the prospect of that country importing 450,000 b/d of U.S. ethane in less than five years. However, the current trade dispute will cause investors to hesitate and less favorable ethane pricing may cause some investors to re-evaluate plans. The prospect of Chinese tariffs on U.S. ethane will slow progress on these projects until the U.S. and China eventually sort out trade relations, which ESAI Energy believes they will do. Meanwhile, advantageous Mt Belvieu ethane pricing is disappearing. After Mt Belvieu ethane traded at a 5 cpg or less premium to Henry Hub natural gas for five years, its premium has tripled. Even with delays and cancellations, however, the olefins market is tilted toward overcapacity.
“In this investment environment, a high-level perspective provides a useful reality check” explains ESAI Energy Head of NGLs Andrew Reed. “There is a point when olefins investment becomes a better indicator of overcapacity rather than a guarantee of future feedstock demand. For future NGL and naphtha, the unmistakable conclusion is that overcapacity will lead to greater inter-fuel competition, which makes the outlooks for demand and pricing of individual feedstocks less bullish than what many believe.”
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