Global Oversupply Delays BASF's Texas Propylene Plant

Global oversupply delays BASF's Texas propylene plant

08-Jun-16

Growing supplies in the global propylene market led to BASF delaying its decision on a planned methanol-to-propylene plant in Freeport, Texas, as per analysts in Platts. The unit with 475,000 m tpa of propylene output would mark the first methanol-to-propylene plant in the US, but the company said Monday it delayed the investment decision planned for this year due to "the current volatility of raw material prices and the prevailing economic environment."
"[There is] too much propane [in] the US, too many [propane dehydrogenation] projects in that environment, MTP is too expensive," HSBC analyst Sriharsha Pappu said. According to S&P Global Platts data, North America PDH capacity is to increase to 2.8 mln mt/year in 2018 from around 500,000 mt/year in 2013. Asian PDH capacity is expected to increase to 10 mln mt/year from around 2.5 mln mt/year in 2013. Meanwhile in Asia, China has seen significant expansion of methanol-to-olefins capacity, with 13 MTO and MTP plants with an annual methanol consumption of 12 mln mt/year. The country should see the start up of an additional four plants this year with a combined methanol consumption of 6.5 mln mt/year.
However, alternative on-purpose production has been seen where needed, which include PDH and coal/methanol to propylene. Another traditional source of propylene has been as a byproduct of fluid catalytic cracking units in refineries.
The US and Asia have led the wave of investment in PDH capacity expansion, expecting higher growth of the propylene value chain versus the ethylene value chain and the lack of future supply coming from traditional routes, namely co-product cracking amid increased ethane cracking in the US.
Joe Pilaro of New York based-consultancy BRAE Partners said the economics of the BASF project are uncertain because of the conditions in the US shale gas business (leading to increases in propane supplies) and the increased production of refinery propylene. "I believe that gasoline demand in the US is on the rise because prices are the lowest they have been in over five years just when people are setting summer holiday plans. Refineries are increasing gasoline production and that results in an increase in propylene output," he said.
Propylene prices have been steadily falling since 2014 amid capacity additions and falls in crude. Propylene spot prices have averaged US$647/mt FD USG, US$687/mt CFR China and US$620/mt CIF NWE across 2016. In comparison, these averaged over double through 2014 at US$1500/mt, US$1348/mt and US$1432/mt, respectively.