With light feedstocks expected to dominate cracking economics in the US for the foreseeable future, US butadiene, propylene, and polypropylene consumers could be faced with high-priced material and product shortage.
A polymer consultant, though, said the shifting feedstock slate in the US could provide a solid export opportunity for a country like South Korea.
"Korea is known for its exports. If I were in Korea, I'd be looking at what shortages there will be in the US and focus on those," said Robert Bauman, a consultant with Polymer Consulting International, Inc.
US olefin producers have been shifting to lighter feedstocks because of the ethane-rich natural gas discoveries in US shale gas plays.
Historically, US crackers used 70% ethane feedstock and 30% naphtha, according to a report by Chemical Market Resources Inc. The shale gas plays have changed the feedstock dynamics now to 87% ethane and 13% naphtha. That change in feedstocks has reduced propylene production in crackers by more than 50%. It also has tightened supplies of crude-C4s and butadiene in the US.
The US butadiene spot price climbed as high as $4,960/mt [225 cents/gal] in July. Prior to that price spike, the record high spot price for US butadiene was just above $3,200/mt, reached during the energy run-up of 2008.
Refinery-grade propylene prices also reached record highs earlier this year, climbing to 91.25 cents/lb in May. The previous record high was 78.375 cents/lb, also reached during the energy run-up of 2008. Since May, though, the RGP price in the US has fallen back to near 70 cents/lb.
As butadiene prices in the US climb, Korean polyethylene producers could be faced with limited export opportunities to Latin America, Bauman said.
When polyethylene in the US gets long -- most likely by 2016 -- the US is expected to dominate the Latin American polyethylene market, Bauman said. Korea currently exports large quantities of polyethylene to Latin America. High polymer prices in Latin America during the past year have motivated exports from China, Korea, Thailand, and the Middle East.
In December, HDPE cargoes moving from South Korea to Chile spiked 291.8% year on year to 2,296 mt. South Korean producers also moved 667 mt of LDPE and 108 mt of LLDPE to Chile over the same period, compared with none for either grade in December 2009, according to Platts research.
Parcels moving from South Korea to Peru also climbed in December, with 1,723 mt of HDPE exports compared with 123 mt in the same month of 2009. South Korean producers also sold 125 mt of LDPE to Peru in December, compared to none in 2009.
Those opportunities, though, could dry up for Korean exporters as US polyethylene production ramps up during the next 3 to 5 years.
"We are going to own that market," a polyethylene trader said.
Instead, Korean producers could cut polyethylene production, and instead focus on the tighter markets in the US -- such as polypropylene and butadiene, Bauman said.
"Korea's strategy could be responding to those shortages in the US," Bauman said. "Most likely, the crude-C4s and other heavies are going to be sourced from outside the US. There's an opportunity there."
As of now, there are no official plans for South Korean producers to increase butadiene production to fill export demand to the US, a US-based butadiene trader said Monday. "But that certainly is an interesting idea," he said. "I haven't heard of that happening -- but it is feasible. But it will depend on how they are committed to C4 and propylene. There certainly is a shortage of C4s globally at this point."
A more likely option, the butadiene trader said, was for on-purpose butadiene production to be built in the US -- taking advantage of any butane feedstocks from US shale-gas plays.
"The problem is it costs a lot," he said of on-demand butadiene production. "It takes a lot of butane -- about 2 pounds for each pound of butadiene. But if butane prices fall because of shale gas, this is possible."
According to the Chemical Market Resources report, about 1.4% of the gas from the Marcellus shale is butane, compared to 5.46% for ethane and 74.22% for methane.
