June 2013 Spray 19 production from legacy sources is in decline. New oil extraction technologies are opening up oil reserves in the U.S. As the pipeline infrastructure is not yet built, in the short term, refineries will be served by rail. Tight oil will continue to grow, replacing traditional oil extraction. As shale gas supplies continue to grow, the cost of gas versus oil per unit of energy increasingly favors gas. Feedstock conversion to light feeds favors ethylene versus propylene at a 2:1 ratio, which is just the opposite of the ratio with heavy feeds. The reduction in supply as a result of the increase in light feeds being used in preference to naphtha has been dramatic. The reduction of steam cracker Buckwalter propylene from around seven million metric tons to between four and five million metric tons has limited supply into several derivative sectors. Natural gas liquid (NGL) production has increased dramatically in the U.S. due to development of shale gas and oil. North American natural gas prices will remain low relative to crude oil, but long ethane supply will keep downward pressure on ethane prices until planned ethylene plants get built. Surplus liquefied petroleum gas (LPG) from the U.S. will need to be exported beyond Latin America, and will need to be priced to compete in distant markets. Ethane should remain the favored ethylene feedstock. If history is any indication, capacity will be overbuilt so NA will initially be oversupplied with polypropylene (PP). Pricing for PP should be reduced as advantaged low cost feedstocks come into play and volatility should also abate. History shows large levels of volatility which are not reflected in a forward forecast, but likely to occur. Producers have changed from a capacity utilization model to a build to order model as demand outpaces supply. This is resulting in reduced inventory throughout the supply chain as producers seek to mitigate inventory risk in volatile markets. Low inventory and lack of excess capacity increase the likelihood of volatility triggered by any disruption in the supply chain. PP supply is expected to tighten in the near term and this will be reflected in pricing Propylene is expected to increase with an abundance of light feeds starting in about 2014. Several projects have been announced, both captive and non-captive plays. Near term, PP demand will be constrained by production capacity. This should result in higher margin over monomer in the near term as the market competes for scarce PP. Spray Past EAA President Pete Erickson of Aptar (left) receives the EAA Recognition Award from EAA President Chris Nyarady of Montebello Packaging. The Recognition Award honors a Board member’s years of commitment and service.
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