Asian paraxylene producers, who are suffering from the narrow spread between PX and naphtha as well as between PX and toluene, which were below breakeven levels for the better part of this year, are waiting to see if cheaper condensate can come their way from the US following the shale boom.
On June 26, the US allowed Eagle Ford shale players Pioneer Natural Resources and Enterprise Products Partners to export condensate. Though this was only a clarification of an existing policy, it led to an upbeat sentiment among petrochemical manufacturers.
Though any condensate that can serve as feedstock for petrochemicals is yet to make its way to Asia, PX makers are talking of higher production margins using cheaper imported condensate. It could, however, be a case of counting their chickens before the eggs are even laid, let alone hatched.
South Korean refiner GS Caltex in early August bought condensate shipped out from Texas in the US, but said that it would not be used as petrochemical feedstock. On July 24, Japan's Cosmo Oil bought its first cargo of US condensate but that too will not serve as a feedstock for petrochemicals.
Cosmo, which expects to get another cargo of 300,000 barrels in October, plans to produce light oil products after blending the condensate with other crude oils. Cosmo is buying condensate from the US is because it is cheaper than what it buys from Qatar, Platts reported earlier.
With US likely to see a glut of condensate thanks to the shale boom, more cargoes could head for Asia creating excitement for standalone Asian petrochemical makers.
The condensate can be used to make heavy naphtha, which can be an alternate source to make isomer-grade mixed xylenes and toluene, which are feedstocks for PX.
Isomer-MX and toluene are, however, extremely volatile and Asia is also net short of isomer-MX.
As a result, PX production margins have been in negative territory for more than a year.
CFR Taiwan PX/isomer-MX margin has been negative since June last year, while FOB Korea toluene disproportionation margins have been negative since November 2013, Platts data shows. Integrated petrochemical producers are better off as they can get heavy naphtha from their refineries.
Many of the new PX plants that have been built or started up this year have condensate splitters.
South Korean SK Innovation's 1.3 million mt/year PX plant has a 150,000 b/d condensate splitter while Samsung Total's 1 million mt/year unit also has a condensate splitter with a similar capacity. These plants started up in July.
Jurong Aromatics' 800,000 mt/year Singapore PX plant, which has a 115,000 b/d condensate splitter, is expected to start up by the end of this month or in September. South Korea's Hyundai-Cosmo Petrochemical and Lotte Chemical are also planning to build condensate splitters by 2016.
Currently, condensates come to Asia from the Middle East, Russia and India. Traders have, however, been complaining of high prices and difficulties in procuring supplies from these regions.
Owing to tight oil output, US crude oil production has grown by almost 50% since 2008 and is up by 1 million b/d, or 14%, since April 2013, according to US Energy Information Administration.
As a result, condensate production is expected to exceed 5 million b/d at least until 2016.
Though crude oil exports are not allowed from the US, condensate can be shipped out as it is not "processed through a crude oil distillation tower," according to Jacob Dweck from Washington DC-based Sutherland Asbill & Brenna. He was speaking at the EIA conference in Washington DC in July.
"Although, current US condensate prices are not so cheap, once exports increase, it may become cheaper than [that from the] Middle East, Russia and India," a trader based in Seoul said.
Lower PX feedstock prices could even have a positive affect on downstream PTA margins and the polyester market, he added.
"But all depends on the price of US condensate," another trader said.
