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Páginas DesdeHydrocarbon Processing 12 2014-9

Lower oil prices are negatively impacting upstream oil producers but may benefit downstream polyolefin producers who use oil-derived feedstocks like ethylene and propylene. Executives from companies like Dow Chemical and LyondellBasell believe lower energy costs will increase consumer spending and demand for plastic products like polyethylene and polypropylene. While lower oil prices in the long run would hurt the industry, the short term dip may stimulate demand for polymers. Product-focused chemical companies that can maintain tight supply chains are best positioned to benefit from this situation.

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74 views1 page

Páginas DesdeHydrocarbon Processing 12 2014-9

Lower oil prices are negatively impacting upstream oil producers but may benefit downstream polyolefin producers who use oil-derived feedstocks like ethylene and propylene. Executives from companies like Dow Chemical and LyondellBasell believe lower energy costs will increase consumer spending and demand for plastic products like polyethylene and polypropylene. While lower oil prices in the long run would hurt the industry, the short term dip may stimulate demand for polymers. Product-focused chemical companies that can maintain tight supply chains are best positioned to benefit from this situation.

Uploaded by

Robert Montoya
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Petrochemicals

BEN DUBOSE, ONLINE EDITOR


Ben.DuBose@HydrocarbonProcessing.com

Polyolefin producers may reap benefits


from lower oil prices
Upstream producers are feeling the pain
from this years plunging oil prices, and uneasiness is trickling into parts of the downstream as well. After all, many of the new
North American petrochemical projects
were developed under the logic of shalegas-derived ethane feedstocks being economically superior to facilities elsewhere
in the world using expensive oil feedstocks.
But follow the chain a bit further, and
theres a potential winner to be found. With
lower energy costs boosting discretionary
income, those petrochemical producers
focusing on plastics such as polyethylene
(PE) and polypropylene (PP) could soon
find a holiday bonus in the form of increased demand for their products.
Its worth noting that over the long
haul, WTI and Brent crude prices between $80/bbl and $85/bbl would be
bad for everyones business in the industry. If sustained, prices like those seen in
the second half of 2014 would undoubtedly discourage upstream development,
leading to a trickle-down effect that
would reduce the supply of feedstocks
for the downstream and crimp margins
across the board.
effects. Assuming that
cheaper range is only a short-term trend, as
many analysts expect, it may actually serve
as a stimulant for many in the downstream
polymers industry. With polyolefin producers directly exposed to consumer demand, many leading chemical companies
are making the case that more disposable
income could lead to more consumption
and demand for the end-products.
A low oil price means more demand
in the GDP, said Dow Chemical CEO
Andrew Liveris, speaking on a conference
call to recap third-quarter earnings. Similarly, Dow CFO Howard Ungerleider said
lower oil prices should help increase gross
domestic product in the US, the UK, Japan and China.

Short-term

Likewise, LyondellBasell Industries,


the worlds biggest maker of PP plastic,
said tight markets for its products could
stall the narrower margins that could ultimately result from lower oil prices.
Speaking on that companys earnings
call, CEO Jim Gallogly said the fundamentals of the US chemical industry have remained favorable heading into the final
months of 2014.
Under those conditions, prices dont
fall very quickly, Gallogly said. The
supply chain is tight at this point, and of
course the US economy is doing well.
Gallogly noted that customers were
not cancelling orders or cutting inventories in anticipation of lower prices.
Recent crude oil price declines are
expected to ultimately impact domestic
margins, but todays tight market conditions may delay the timing of potential
declines, Gallogly said.
Product-focused producers benefit
most. Executives with chemical produc-

er Huntsman might be even more bullish than both Dow and LyondellBasell.
Speaking after his companys third-quarter earnings, CEO Peter Huntsman said
cheaper oil will eventually reduce prices
for raw materials like ethylene, propylene
and methanol. Huntsman is a net purchaser of those chemicals, which it then
converts into products.
Falling oil prices would be a benefit
to our company, he said. We ought to
be able to maintain our current margins,
if not expand them in certain areas.
Huntsman, in particular, expects to
benefit from its recent acquisition of the titanium dioxide (TiO2 ) unit of Rockwood
Holdings, which Huntsman purchased on
Oct. 1 for about $1 B.
Its not a rosy picture for everyone in
petrochemicals, of course. With crude
oil declining more than 20% since June,
Goldman Sachs recently cut its profit

estimates for ethylene producers, saying


that margins from using natural gas feedstocks may narrow.
Plastics makers are insulated. For

companies well integrated throughout the


petrochemical value chain, any decline
in ethylene margins could be recouped
in plastics. David Begleiter, a New Yorkbased analyst at Deutsche Bank, wrote in
a note that US plastics companies should
be relatively insulated from the drop in
crude because ethylene supplies are tight.
In the big picture, few in the industry
are expecting the trend of lower prices to
be sustained. LyondellBasells Gallogly
said that hes not too worried that the
oil drop will limit drilling in shale formations, noting that drillers are already producing more ethane than the chemical
industry can use.
As a result, the numerous new US ethylene projects and expansions planned for
the latter half of this decade do not appear
to be in jeopardy.
In the short term, the big swing in oil
prices creates both winners and losers.
The losers have been well-documented,
but if cheaper oil spurs the economic
gains like Dow and others predict, polyolefins producers could soon find an unexpected holiday bonus.

FIG. 1. LyondellBasell produces PP at its


Bayport plant in Pasadena, Texas. It is used
by customers to produce consumer products.
Hydrocarbon Processing|DECEMBER 201431

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