Equistar Extends Lake Charles Shutdown; Others May Follow.(Ethylene)(Brief Article)
Author/s: Robert Westervelt
Issue: June 27, 2001
EQUISTAR CHEMICALS SAYS IT WILL prolong the outage at its 850-million lbs/year ethylene unit at Lake Charles, LA "until marker conditions improve and Equistar requires the additional producdon." The unit was shut in February because of poor demand for derivatives such as polyolefins and ethylene glycol, as well as rising natural gas prices. Equistar says it will "reduce the state of readiness" at Lake Charles, extending the time needed for a restart from two weeks to approximately six months.
Other temporary or permanent ethylene capacity shutdowns in the U.S. are likely with more than 3.5 billion lbs/year of additional capacity due soon, analysts say. Formosa's 1.8-billion lbs/year cracker at Point Comfort, TX will come online this month, and BASF and Atofina are expected to start up their joint venture cracker early in the fourth quarter.
"The current supply-demand conditions in the market are very loose and may get worse as the year goes along," says Sergey Vasnetsov, analyst at Lehman Brothers (New York). "Surplus capacity has risen to levels not seen since the early 1990s." The industry will benefit only if some higher-cost, ethane-based capacity is taken offline, says Vasnetsov, who recently identified seven possible candidates (table). "To be blunt, some producers need to take one for the team," he adds.
Chevron Phillips 450 million lb/year #12 cracker at Sweeney, TX is already shut and expected to remain idled through at least the end of the year. The company's #22 cracker, with capacity for 650 million lbs/year remains shut after a previously planned May turnaround. It is not clear when the company will restart the unit. Huntsman has reportedly temporarily idled its Port Neches, TX unit.
U.S. demand is also stumbling as capacity builds. First-quarter demand totaled 12.8 billion lbs, an 11% decline from the record of 14.5 billion lbs in fourth-quarter 2000, says Mark Eramo, director/ethylene studies at CMAI (Houston). Second-quarter demand should be similar to the first-quarter, says Eramo.
Ethylene profitability is likely to remain extremely depressed for the next 18 months, says Eramo. "Margins may bottom out by the fourth-quarter but won't improve much, if at all, in 2002" because of low operating rates, he says. "I see 2003 as a transition year, before sustained improvement in operating rates and margins in 2004." The next peak of the ethylene cycle is likely in 2005-06, he adds. U.S. ethylene operating rates are 80%, down 10 percentage points from a year ago, says Eramo. Operating rates could fall to 75% by year-end and remain in the 75%-80% range throughout 2002, he says.
Equistar says it will redeploy 100 fulltime workers at Lake Charles to other plants and eliminate 50 contract workers. The plant is the only one of eight Equistar crackers without downstream derivative production. The plant also is limited to ethane and propane feedstocks, which are at a cost disadvantage to naphtha and other liquid cracker feedstocks.
"We believe that this asset has long-term value to Equistar," says Eugene R. Allspach, president and COO. "But in today's environment, we can supply our customer's needs from our newer, world-scale ethylene units that can operate more efficiently."
CLOSURE CANDIDATES?*(millions of lbs/year)COMPANY LOCATION CAPACITYChevron Phillips Sweeney, TX 400 Sweeney (#22) 650Dow Chemical Texas City, TX 1,500 Seadrift, TX 945Equistar Chemicals Lake Charles, LA 800ExxonMobil Houston 750Formosa Point Comfort, TX 1,500Huntsman Port Neches, TX 500Westlake Calvert City, KY 380(*)Higher-cost ethane crackers thatmay be temporarily or permanentclosed.Source: Lehman Brothers (New York).
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