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Rising ethane prices hit Phillips 66's chemical earnings

HOUSTON, October 26, 2018 (PCW) -- The outlook for PE demand growth and margins remains constructive going into 2019, despite weaker chemical earnings in 3Q, Phillips 66 executives said in an earnings related conference call today.

Phillips 66, which is co-owner of Chevron Phillips, registered a $70 million negative impact to 3Q net income due to declining margins at the joint venture, driven largely by higher ethane feedstock costs.

Ethane had a "wild ride" in 3Q, said Phillips 66 CEO Greg Garland.

How quickly the frac capacity filled up was surprising, he added, referring to the fractionator units that produce ethane from the raw NGLs stream.

Garland said the industry reacted to the rising ethane costs by cracking more propane to put pressure on ethane prices.

Chevron Phillips' 3Q domestic PE capacity utilization was 96%, but the company still saw its inventories decline. Its global olefins and polyolefins utilization was 91% in 3Q, which was affected by the planned turnaround of the Port Arthur, TX cracker and a power outage at Cedar Bayou that took down both crackers at the site.

The company expects global O&P utilization for 4Q in the mid-90s.

Chevron Phillips is studying another ethylene and derivatives expansion along the Gulf Coast, with work progressing on site studies, permitting and initial designs. A final investment decision could come as early as 4Q 2019 or early 2020, executives said.

In addition, executives cited debottlenecking opportunities across the existing capacity base, including at the new Cedar Bayou cracker. -- David Barry

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