US ethane supply to tighten by 2021: Dow

OREANDA-NEWS. July 24, 2015. Dow Chemical expects to benefit from increased propane cracking margins for "many quarters to come," chief executive Andrew Liveris told investors this morning.

Propane fundamentals remain bearish, Liveris said. "Propane and butane will fundamentally be a tailwind for the next many quarters."

Dow expects the US ethane supply/demand balance to reach near parity by 2021, with about 2.4mn b/d produced in 2021 compared with about 2.3mn b/d of demand. Conversely, the company expects US propane supplies to greatly exceed demand. Dow's forecast calls for approximately 2.1mn b/d of propane compared with less than 1.4mn b/d of domestic demand.

Cash costs for propane cracking hovered well below those of ethane cracking for much of this year so far. The cash cost for cracking propane on the US Gulf coast averaged just over 3?/lb in the 24 June-22 July time period, according to an Argus DeWitt model. That compares with an average cost of just under 12?/lb to crack ethane over the same time frame.

Dow has the flexibility to crack about 67pc propane in the US and about 55-60pc in Europe, Liveris said.

The company has the capability to switch between ethane and propane cracking "within a day or two, he said.

Dow Chemical finished construction on its 750,000 t/yr propane dehydrogenation (PDH) unit in Freeport, Texas, during the second quarter and is currently commissioning the unit. The company did not divulge when it expects propylene production from the unit to begin.

Dow uses propylene to produce propylene oxide, polypropylene, normal butanol, isopropanol and acrylonitrile, among other derivatives.

Dow reported a \\$1.22bn profit in the quarter, up from \\$967mn a year ago. However, sales in the company's hydrocarbon and energy businesses decreased primarily because of lower prices from ethylene byproducts, which decreased along with oil prices.

Dow expects downward pressure on polyethylene prices going forward as oil prices are forecast to remain much lower than last year for the rest of this year.

"We will see some [polyethylene] price slippage with the oil price slippage," Liveris said. "But we had a polyethylene price increase in June."