RECESSION DIMS PETROCHEMICALS OUTLOOK
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News of the Week RECESSION DIMS PETROCHEMICALS OUTLOOK U.S. petrochemical producers ap- proached 1980 warily, sensing a re- cession but hoping it wouldn't be too severe. Optimists still predicted pro- duction increases this year for ethyl- ene and propylene, no drop for buta- diene and benzene, and a small de- cline for ρ-xylene (C&EN, Nov. 19, 1979, page 10). Those hopes are now dashed as a recession on the order of 1974-75 rampages through the industry. Re- visions on this year's output are coming thick and fast, about as fast as price cuts and discounts. This is at a time when feedstock hydrocarbon prices are still rising. A profits squeeze is guaranteed for the rest of 1980. An example of current thinking on the outcome for petrochemicals this year is a fresh study on light hydro- carbons and ethylene by Ericsson Chemical Services and McClanahan Consultants, both of Houston. These consultants now view ethylene pro- duction off 5 to 10% in 1980 from 1979, depressing raw material ethane volume 8% and propane 13%. So far, ethylene has lost at least half a cent of its 24.5 cent-per-lb list price to discounting. Benzene, worse off, officially has dropped 15 cents of its former list price of $1.80 per gal. Other leading aromatics are suffering similar price drops. As the economic storm intensifies, industry people are beginning to have considerably more mixed views on recovery prospects and growth later in the 1980's. Up to now, the consensus has been optimistic for 1981 and beyond. The feeling has been that petrochemicals, like other basic chemicals, would enjoy a prosperous cycle after the current recession largely because of Source: Pace Co. Consultants & Engineers moderated capital spending over the past few years. Now there is some dissent among the faithful. At the national meeting of the American Institute of Chemical Engineers in Philadelphia last week, the future still looked good to Union Carbide, an olefins power, and seemed considerably improved to Monsanto, a leading producer of ar- omatics derivatives. But their re- marks were in contrast to a sweeping conservative revision on petrochem- icals in the 1980's from Pace Co. Consultants & Engineers of Houston. In a keynote speech to the meeting, Carbide chairman William S. Sneath reiterated the upbeat prognosis for the 1980's. He still says it's realistic for U.S. petrochemicals to grow half again as fast as constant-dollar gross national product. "We at Union Carbide see every reason to expect not only an expanded role for the in- dustry in our domestic economy, but also the likelihood of becoming the most cost-efficient segment of a glo- bal petrochemical business. Even as U.S. energy and feedstock prices rise to world levels, the range of feedstock alternatives in this country, the scale of our plants, and our technical ca- pability, will continue to make U.S. petrochemical producers formidable competitors in world markets," Sneath says. The future is brightening even for aromatics supplies for chemicals, previously thought constricted by competing demand for octane boost- ers in gasoline. That's the view James D. Anderson, Monsanto's director of energy products supply, presented at the AIChE meeting. "Gasoline demand," says Ander- son, "has peaked several years earlier than expected and will gradually de- cline. This contrasts with forecasts of a year ago, when the peak was pro- jected for the early 1980's at 7.5 mil- lion to 7.6 million bbl per day." Thereafter, the projection was that gasoline would "plateau for a few years, and then begin to decline in the mid-1980's." Now, Anderson fore- casts an average 6.6 million bbl-per- day gasoline consumption for 1980 and then a decline to 5.7 million bbl by 1990. That's good news to Anderson for aromatics use in chemicals. With ad- equate extraction capacity in place or on the way to make these building block products available for chemi- cals, Anderson forecasts annual per- centage growth rates of 5.3% for ben- zene, 2.4% for toluene, and 4.4% for xylenes. Not quite so, according to Calvin B. Cobb of Pace Co. He pegs benzene's and mixed xylenes' growth in chemi- cals at 3.7% per year in the 1980's. He also foresees continuation of the feedstock tussle between chemicals and gasoline for aromatics supplies, calling this the worst such situation in petrochemicals. The result will be faster price escalation for aromatics than for other petrochemicals. "When faced with a choice between gasoline and aromatics sales, refiners will in- creasingly opt for gasoline produc- tion," Cobb says. Cobb's assessment for olefins is not much more cheerful. He forecasts annual ethylene growth of 4.2% in the 1980's with a lag in return on invest- ment behind desired reinvestment levels until the middle of the decade. "Higher energy prices, reduced eco- nomic growth, and lower demand growth for petrochemicals will ag- gravate the current ethylene over- supply situation. At the same time, new ethylene capacity will be faced with the formidable obstacles of site selection and permitting," he says. Of all the major petrochemicals, Cobb is most optimistic about pro- pylene, mainly because of good growth in polypropylene. He rates propylene growth at 5.2% per year in the 1980's, higher than for ethylene. One result is that oil refineries will still have to fill the gap in propylene supply, since the primary propylene source, co-product output at ethylene plants, will be roughly tied to the ethylene growth rate. D U.S. petrochemical growth predictions are dropping Billions of ib Ethylene Propylene Benzene Mixed xylenes Butadiene TOTAL FORECAST IN 1978 1977 24.6 11.9 11.5 4.1 3.9 56.0 1980 29.4 14.1 12.4 5.5 3.8 65.2 66.3 1985 36.2 18.4 14.8 6.7 4.4 80.5 88.4 1990 44.4 23.3 17.8 7.9 5.2 98.6 109.4 2000 64.1 36.2 24.6 12.6 7.1 Ί44.6 158.2 Average annual growth 1980-90 1990-2000 4.2% 5.2 3.7 3.7 3.2 4.2% 5.1% 3.7% 4.5 3.3 4.8 3.2 3.9% 3.8% 4 C&EN June 16, 1980
Transcript of RECESSION DIMS PETROCHEMICALS OUTLOOK
News of the Week
RECESSION DIMS PETROCHEMICALS OUTLOOK U.S. petrochemical producers approached 1980 warily, sensing a recession but hoping it wouldn't be too severe. Optimists still predicted production increases this year for ethylene and propylene, no drop for butadiene and benzene, and a small decline for ρ-xylene (C&EN, Nov. 19, 1979, page 10).
Those hopes are now dashed as a recession on the order of 1974-75 rampages through the industry. Revisions on this year's output are coming thick and fast, about as fast as price cuts and discounts. This is at a time when feedstock hydrocarbon prices are still rising. A profits squeeze is guaranteed for the rest of 1980.
An example of current thinking on the outcome for petrochemicals this year is a fresh study on light hydrocarbons and ethylene by Ericsson Chemical Services and McClanahan Consultants, both of Houston. These consultants now view ethylene production off 5 to 10% in 1980 from 1979, depressing raw material ethane volume 8% and propane 13%.
So far, ethylene has lost at least half a cent of its 24.5 cent-per-lb list price to discounting. Benzene, worse off, officially has dropped 15 cents of its former list price of $1.80 per gal. Other leading aromatics are suffering similar price drops.
As the economic storm intensifies, industry people are beginning to have considerably more mixed views on recovery prospects and growth later in the 1980's.
Up to now, the consensus has been optimistic for 1981 and beyond. The feeling has been that petrochemicals, like other basic chemicals, would enjoy a prosperous cycle after the current recession largely because of
Source: Pace Co. Consultants & Engineers
moderated capital spending over the past few years.
Now there is some dissent among the faithful. At the national meeting of the American Institute of Chemical Engineers in Philadelphia last week, the future still looked good to Union Carbide, an olefins power, and seemed considerably improved to Monsanto, a leading producer of aromatics derivatives. But their remarks were in contrast to a sweeping conservative revision on petrochemicals in the 1980's from Pace Co. Consultants & Engineers of Houston.
In a keynote speech to the meeting, Carbide chairman William S. Sneath reiterated the upbeat prognosis for the 1980's. He still says it's realistic for U.S. petrochemicals to grow half again as fast as constant-dollar gross national product. "We at Union Carbide see every reason to expect not only an expanded role for the industry in our domestic economy, but also the likelihood of becoming the most cost-efficient segment of a global petrochemical business. Even as U.S. energy and feedstock prices rise to world levels, the range of feedstock alternatives in this country, the scale of our plants, and our technical capability, will continue to make U.S. petrochemical producers formidable competitors in world markets," Sneath says.
The future is brightening even for aromatics supplies for chemicals, previously thought constricted by competing demand for octane boosters in gasoline. That's the view James D. Anderson, Monsanto's director of energy products supply, presented at the AIChE meeting.
"Gasoline demand," says Anderson, "has peaked several years earlier
than expected and will gradually decline. This contrasts with forecasts of a year ago, when the peak was projected for the early 1980's at 7.5 million to 7.6 million bbl per day." Thereafter, the projection was that gasoline would "plateau for a few years, and then begin to decline in the mid-1980's." Now, Anderson forecasts an average 6.6 million bbl-per-day gasoline consumption for 1980 and then a decline to 5.7 million bbl by 1990.
That's good news to Anderson for aromatics use in chemicals. With adequate extraction capacity in place or on the way to make these building block products available for chemicals, Anderson forecasts annual percentage growth rates of 5.3% for benzene, 2.4% for toluene, and 4.4% for xylenes.
Not quite so, according to Calvin B. Cobb of Pace Co. He pegs benzene's and mixed xylenes' growth in chemicals at 3.7% per year in the 1980's. He also foresees continuation of the feedstock tussle between chemicals and gasoline for aromatics supplies, calling this the worst such situation in petrochemicals. The result will be faster price escalation for aromatics than for other petrochemicals. "When faced with a choice between gasoline and aromatics sales, refiners will increasingly opt for gasoline production," Cobb says.
Cobb's assessment for olefins is not much more cheerful. He forecasts annual ethylene growth of 4.2% in the 1980's with a lag in return on investment behind desired reinvestment levels until the middle of the decade. "Higher energy prices, reduced economic growth, and lower demand growth for petrochemicals will aggravate the current ethylene over-supply situation. At the same time, new ethylene capacity will be faced with the formidable obstacles of site selection and permitting," he says.
Of all the major petrochemicals, Cobb is most optimistic about propylene, mainly because of good growth in polypropylene. He rates propylene growth at 5.2% per year in the 1980's, higher than for ethylene. One result is that oil refineries will still have to fill the gap in propylene supply, since the primary propylene source, co-product output at ethylene plants, will be roughly tied to the ethylene growth rate. D
U.S. petrochemical growth predictions are dropping
Billions of ib
Ethylene Propylene Benzene Mixed xylenes Butadiene
TOTAL FORECAST IN 1978
1977
24.6 11.9 11.5 4.1 3.9
56.0
1980
29.4 14.1 12.4 5.5 3.8
65.2 66.3
1985
36.2 18.4 14.8 6.7 4.4
80.5 88.4
1990
44.4 23.3 17.8 7.9 5.2
98.6 109.4
2000
64.1 36.2 24.6 12.6 7.1
Ί44.6 158.2
Average annual growth 1980-90 1990-2000
4.2% 5.2 3.7 3.7 3.2 4.2% 5 .1%
3.7% 4.5 3.3 4.8 3.2 3.9% 3.8%
4 C&EN June 16, 1980
