Sometimes too much is just too much. While the supply glut in natural gas, ethylene and oil ultimately provides cheaper feedstocks for the petrochemical industry and positions the U.S. as the global supplier of choice, it also signals demand-side problems.
Of course, this has been exacerbated exponentially by the Covid-19 pandemic, as worldwide demand for all fuels fell dramatically due to stay-at-home orders, lockdowns and temporarily shuttered plants.
It’s a complex dynamic that plays out in rather visible and tragic ways in the Permian Basin. The associated natural gas coming out of oil wells there is being flared in unprecedented volumes, as it has nowhere to go. That’s because incomprehensibly low gas prices make it difficult to justify the expense of getting the product out. This likely will continue through 2020 to an extent, despite furloughs and spending cuts caused by the pandemic and a Russian-Saudi price war.
A similar price dynamic holds true for ethylene. U.S. spot ethylene prices continued their decline into 2020, due to a fundamental oversupply in the market and lagging demand. To find an outlet, U.S. ethylene producers have turned to export terminals, such as Enterprise and Navigator Holdings’ new 1 million-ton-per-year facility in Morgan’s Point, Texas.
Short-term variables aside, many industrial owners are bullish about ethylene’s long-term prospects, 10/12 Industry Report notes in its latest edition. Formosa Plastics—through its subsidiary FG LA LLC—plans to move forward with its new $9.4 billion St. James Parish mega plant despite short-term demand problems.
Janile Parks, director of community and government relations for FG LA LLC, says in a written statement that preliminary work has already begun, but admits there is a good deal of market uncertainty. “We will monitor the developments closely and adjust our planning accordingly,” Parks says in the statement.
“While the price of ethylene has dropped,” she adds, “the cost of raw materials has also lowered due to development in the shale gas market; therefore, the project phases remain unchanged at this point.”