The True Edge

A Navarik Market Update


When Hurricane Harvey shut in an estimated one-third of US petrochemical refining capacity, market watchers were naturally concerned about supplies of the major transportation fuels (gasoline, distillates, and jet fuel). However, it is becoming increasingly apparent that Harvey’s effects on the oil and gas market extend further downstream. This includes ethylene; a colourless and flammable alkene used in a wide variety of consumer goods, packaging, and synthetic fibres. This is especially true given that Texas accounts for a higher proportion of the US ethylene production capacity (approx. 70%) than it does for the more general petroleum market.

However, although this is an additional concern that the market should rightly address, Navarik Data suggests that the effects of Harvey may not yet have reached this far downstream. Moreover, the market effects of a temporary shutdown in ethylene production may not be as sizeable as that of transportation fuels.

First, transportation fuels are consumed at an effectively constant rate. Products such as packaging, films, and hard articles - which make up an estimated 60% of the demand for ethylene- are not. Although the durability of these supplies varies, the wider economy can likely withstand a temporary disruption through delayed demand compared to fuels. Second, Navarik Data on movements of ethylene glycol (a further downstream product of ethylene) have to date not shown any signs of disruptions. This may be due to the fact that much of the US production is further east than Houston; near Geismar, LA. This area was not as badly hit by Harvey’s flooding, and in our proprietary dataset appears to be functioning normally. Third, even if downstream users of ethylene start to feel the effects of a feedstock shortage, by now it has become apparent that the bulk of the refining capacity in the greater Houston area is likely to be back online (at least partially) within weeks. The estimated days of supply for ethylene is estimated at 2 weeks, and that of propylene (arguably the second most important downstream chemical) is estimated at as much as 65 days.

Generally speaking, the ethylene market will likely fare relatively well – good news for consumers and producers alike. This may change as more data appears, but at present we at Navarik Data believe that the market has the flexibility to endure.

Further Reading:
• ChemInfo, September 5 2017
• Bloomberg, August 31 2017
• Energy Information Administration, Weekly Supply Estimates

Figure 1: World Consumption of Ethylene
 

Source: IHS Markit

Figure 2: Major Chemical Facilities near Geismar, LA

Source: Google Maps


Colin McCann is an Oil & Gas analyst with Navarik Corporation. The Navarik Data Products team analyzes Navarik's proprietary data sets and external sources to provide insights into the oil & gas shipping market. The resulting analysis enables physical and paper traders to see ship movements across the barrel before anyone else in the market.

To reach a Navarik Oil & Gas analyst email tradeflow@navarik.com. To reach Colin directly call +1-778-327-6917 or email cmccann@navarik.com.

A list of current available trade flow reports can be found here.

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