Amanda: Hi, and welcome to this "Chemical Conversations" podcast, brought to you by Argus Media. This will be the third podcast exploring the logistics of supplying ethylene to European consumers. Today's discussion will focus on the export options from the U.S. I'm Amanda Richardson, Global Olefins Analytics Manager for Argus Media. I'm joined today by Craig Berry, our lead consultant for Ethylene and Derivatives. Thanks for joining me, Craig.
Craig: Thanks Amanda. It's good to be here with you today. First, let me start by just maybe discussing briefly and laying out what's happened in the U.S. over the past 10 years. The U.S. has constructed approximately 17 million tons or so of new ethylene capacity. These new crackers utilize ethane produced from associated gas as feedstock, but in parallel at the same time as these new crackers being built, a key U.S. ethylene infrastructure provider constructed new ethylene pipelines, underground storage, and an ethylene export terminal that connects most U.S. producers and consumers together into one system. The ethylene export terminal started up around approximately 2020, and then last year, in 2020, or, I'm sorry, two years ago, in 2023, exports reached 1.1 million metric tons. This number represents ethylene exports not just to Europe, but various regions around the world. Last year, we saw, actually, saw a decline in U.S. ethylene exports of around 23%, as a result of higher spot U.S. ethylene prices and higher freight costs, which limited export opportunities, especially during the second half of the year.
Amanda: So, if ethylene export opportunities are more limited, why would producers not just export the derivatives of ethylene, like polyethylene, PVC, ethylene glycol? That would be cheaper, is that correct?
Craig: Yeah, Amanda, you're correct. The current U.S. ethylene export capacity only represents about 3% of the region's ethylene production capacity. Most U.S. ethylene producers are integrated into downstream derivatives, but still from time to time sell ethylene into the merchant market. For U.S. producers, they can either sell ethylene into the domestic market, or they can choose to export volumes around, into other regions around the world. However, exporting derivatives remain their primary focus. There's been quite a bit of growth in polyethylene, PVC, ethylene glycol exports since 2020. Since this past year alone, polyethylene exports made up approximately 50% of all U.S. polyethylene production.
Amanda: Wow. So, the polyethylene exports story is really the big story. But given the cost advantage of U.S. ethane crackers, are there plans to expand the existing ethylene terminal, or build a new one?
Craig: Yes, there are. And your question is actually kind of timely, because Enterprise, which operates the Morgan Points Terminal, just actually finalized an expansion end of last year, early this year. The terminal handles essentially all U.S. ethylene exports. The terminal, it was expanded from approximately 1 million metric tons per year capacity to 1.5 million metric tons. Enterprise has also publicly stated that the terminal could eventually be expanded to 3.2 million metric tons. Now, there are some other midstream companies that are also talking about ethylene exports, and they're evaluating options to build facilities as well, but these plans are really early in their discussions, and still under evaluation.
Amanda: I see. So, are most of these U.S. ethylene exports going to Europe?
Craig: You know, Amanda, given what might on the surface feel like a freight advantage, one would think so. But over the past two, three years, most U.S. ethylene exports have actually gone to either China or Southeast Asia. There is a major European ethylene consumer that imports large volumes from the U.S. into Belgium. And there's also other European countries that receive from time to time small volumes of U.S. ethylene imports, like France, the Netherlands, and Germany. But just to round out the picture some, European ethylene consumers also import ethylene from the Middle East from time to time, in North Africa. But one thing to keep in mind with the new ethylene cracker under construction in Belgium, the need for Europe to import ethylene could decline after the startup of this unit in 2027.
Amanda: Interesting. So, how could the announced cracker shutdowns in Europe impact ethylene imports? Do you think that U.S. ethylene imports providing feedstocks for downstream units that continue to operate, do you see that happening?
Craig: Well, you know, I think when these announcements first, you know, were announced late last year, there was a lot of chatter, you know, within industry about that happening. But I think if you step back and, you know, you look at the logistics, logistics remain a barrier to a significant increase in European imports. You know, the European ethylene pipeline system is not really set up to move molecules long distance, and it's expensive. You know, also you can go from there and look at the size of European import terminals, storage. They're also somewhat small. You know, this would dictate the use of smaller ships. And there are actually fewer of these smaller ships available, and very few are being built going forward. And they're very expensive to operate. So that the reality of all this, you know, on the ground, is that the logistics will be a hurdle to significant ethylene import growth.
Amanda: Okay. Makes sense. What about on the U.S. Gulf Coast, the supply and demand situation? Is there going to be enough ethylene to support long-term structural exports, especially to Europe, if some of these logistical challenges can be overcome?
Craig: Well, you know, actually, you know, the U.S. is going in another direction. You know, U.S. producers are actually pursuing a strategy to further integrate their low-cost ethylene production. I expect about 2.5 million tons of new derivative capacity to start up between 2024 and 2028. Some of this new capacity will be the result of integration. You know, but non-integrated ethylene consumers are also choosing to grow in the U.S., you know, to take advantage of the low-cost ethylene. Some of this new derivative capacity will likely find its way to Europe. You know, just to remember, only 3% of the U.S. capacity is non-integrated with derivatives. And ironically, this matches the current U.S. ethylene export capacity. So, I mean, kind of sum it up, you know, U.S. producers are not really focused on exporting ethylene. They do it to help balance their system, but they've really set up a system that's really driven to export derivatives throughout the world.
Amanda: Got it. Okay. So, what's your long-term view on U.S. ethylene exports to Europe? Do you see them growing at all?
Craig: You know, I actually see the potential for a slight uptick in imports in the near term, especially as these derivatives are being built out in the U.S. So, let's say over the next one, two years, we could see a slight uptick. But I'm expecting, you know, the European ethylene system to come into a balance long-term. Yes, we're seeing European crackers shut down, and maybe derivatives continue to operate. But, you know, let's not forget that there's a new ethane cracker that's being built to offset some of these closures. You know, also, the investment and regulatory hurdles to improve the infrastructure system will remain an issue for the long term. So, really, between the new capacity, limited infrastructure, I don't anticipate that we'll see a long-term structural increase in ethylene imports into Europe. You know, but on the other hand, you know, we'll continue to see imports to deal with periods of market shortages caused by planned and unplanned events.
Amanda: Thanks so much for sharing your insights, Craig. It seems like U.S. ethylene exports could grow, with all the new production capacity and infrastructure investments in the U.S., but European logistics will limit how much of this volume actually goes to the European market. If you want to learn more about our market coverage, or the ethylene trade balance, which is covered in our biannual ethylene analytics product at the country, regional, and global level, both current and a 10-year forecast, please get in touch via our website, argusmedia.com. Thanks so much for listening.
