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PDH margins increasingly uncompetitive on propane strength

HOUSTON, January 29, 2018 (PCW) -- Over the next few weeks, Enterprise Products Partners’ new 1.65 billion lbs/yr propane dehydrogenation (PDH) unit at Mont Belvieu is expected to begin service, consuming about 35,000 b/d of propane in the process. However, PDH production margins -- the economic benefit of producing polymer-grade propylene using propane as a feedstock –- have come under immense pressure since mid-2017 and are now the least profitable production method.

PGP can be produced in a variety of ways: PDH, via a splitter using refinery-grade propylene as a feedstock, as a by-product of the steam cracking process, or via a metathesis unit, which uses ethylene as a feedstock. PetroChem Wire’s analysis of these production methods shows that while PDH margins kicked off 2016 as the most profitable production method, it began to lose favor in 2017 to metathesis and began 2018 neck-and-neck with splitters.

PDH margins rose 7.9 cpp during 2017, or 94.7%. Metathesis margins, however, were up 17.9 cpp (126.5%) and splitter economics rose 3 cpp (31.6%). So far this year, margins are up 7.3 cpp (41.3%) for PDH, 11.5 cpp (85.2%) for splitters and 6.9 cpp (19.9%) for metathesis. Effectively, while PDH and splitter margins are catching up with metathesis units, they are now on level footing.

The reasons for PDH’s fall from favor are many. In 2017, spot propane prices were on a sharp upswing due to record exports. Rising prices of feedstock propane ultimately compressed PDH margins. Ethylene was fairly range-bound in 2017 as PGP prices soared on tight supplies, allowing that margin to widen considerably. RGP prices increased in 3Q 2017 as US Gulf Coast refineries took major production hits during Hurricane Harvey (RGP is produced during the fluid catalytic cracking process at refineries).

So what are the conditions that would bring propane back into favor as a PGP production method? Lower spot propane prices would be a start. Spot propane has fallen 12.5 cpg (12.7%) so far this year and should it continue to decline would increase PDH’s profitability. The forward curve does indicate a decline through 3Q, which should encourage PDH margins in the near term. But it would also require an uptick in ethylene and RGP prices, both of which are moderately weaker so far this year, as well. -- Samantha Hartke

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