U.S. refiners are now processing close to 17.1 million bpd of crude feedstock, according to a briefing from the Energy Information Administration (EIA) at the end of the first full week in January. This is the highest processing volume based on the EIA’s weekly data going back to 1989. Utilization rates were also at their highest since September 2016. Part of the reason for high plant utilization is not necessarily due to market conditions. Rather, refineries are cranking out production to build fuel stockpiles before they go into early spring maintenance turnarounds, according to Craig Methune with Manulife Asset Management Ltd in Toronto. But there are already certain product surpluses, such as olefins going into 2017, opening opportunities for increased exports, especially from the U.S. Gulf Coast (USG) to Latin America.
Concerns about supply overhang for certain refined products include olefins such as propylene, as major capacity additions; particularly from on-purpose built propane dehydrogenation units (PDH units for propylene production) in the USG may further lengthen supply in 2017. For example, the startup of Enterprise Products Partner’s PDH unit in Mont Belvieu, Texas during the first quarter of 2017 will significantly increase propylene supply. The Enterprise unit, originally scheduled for startup back in 2015, will add 750,000 mt/yr of propylene capacity to the market.
According to a recent Platts report, spot polymer-grade-propylene (PGP) averaged 32.56 cents/lb ($717.82/mt) through mid-December 2016. In contrast, spot PGP averaged 68.79 cents/lb in 2014, more than a 50% drop in PGP value since 2014. PGP is the highest purity propylene, followed by chemical-grade-propylene and then refinery-grade-propylene. The Platts report noted that spot, refinery-grade-propylene, which tends to trade at a 10-12 cent/lb discount to higher-purity PGP, showed a similar trend, averaging 21.69 cents/lb through mid-December, compared with 58.35 cents/lb in 2014!
According to some analysts, the onus on increasing FCC based propylene production has subsided, at least in the U.S. market due to the market being long on propylene. Unless the downstream derivatives market for polypropylene (PP) improves, some FCC utilization rates could perhaps decline later in 2017. But the higher probability is that refiners will have to re-adjust their FCC gasoline-to-propylene yield ratio. Compared to Asian FCC units, with propylene yield ratios exceeding 13%, some U.S. refiners could revert back to about a 6% propylene yield, as refinery-grade-propylene and butylene are still needed for high-octane alkylate production.
Even at reduced prices for FCC sourced propylene, cheaper crude feedstocks (whether heavy or light) have cushioned the negative impact. In 2016, over 60% of propylene production was used to manufacture PP resins. However, the recent fluctuations seen with propylene’s downstream derivatives, especially the PP market, make planning for increased refinery based propylene production risky, at least in the short term.