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NOVA’s Gulf Coast entry increases market share, opens up export opportunities
HOUSTON, April 20, 2017 (PCW) -- NOVA Chemicals, the largest olefins producer in Canada, this week announced it was entering the US market with the purchase of Williams’ majority stake in the 2.06 billion lbs/yr Geismar cracker and its Mont Belvieu ethylene hub. Last month, it said it would partner with Total and Borealis in the construction of a 2.2 billion lbs/yr ethane cracker in Port Arthur.
The move, while not expected to exact a material impact on NGL or olefins prices, does increase NOVA’s standing as a major player in the North American olefins market by establishing a footprint in the Gulf Coast. With its Canadian assets, NOVA produces 8.05 billion lbs/yr of ethylene, representing nearly 10.9% of North American production. In the 2020 time frame, with both the Geismar and Port Arthur crackers under its belt, NOVA’s ethylene output could account for 11.5% of North American production.
NOVA’s entry into the US Gulf vastly expands its geographical reach. Currently, all of its ethylene assets lie in Canada with some derivatives units in Pennsylvania and Ohio. Its current ethylene and derivatives production is mainly consumed in Canada or exported to the US.
But coming to the Gulf also opens the possibility of greater exports to Asia and Latin America for NOVA, the primary export markets for other companies that are now building new crackers and derivatives units in the US. The Geismar purchase also includes some 525 acres of land next to the olefins plant, which could be used to build derivatives units.
The path to increased exports is key to understanding this rapid and aggressive growth on NOVA’s part. Chemicals and plastics make up only 10% of overall Canadian exports. Some 81% of those chemical and plastics exports head to the US and 10% bound for Asia.
One of the reasons for the relatively lower exports to premium-priced Asian markets is Canadian logistics. Petrochemical plants are located in Alberta and Ontario, far from ports on either coast. Railing it to ports in British Columbia is an added cost to producers, one which is exacerbated by the existence of company-specific infrastructure, which often results in the use of multiple rail carriers for delivery. The rail time to British Columbia (about five days) and the rail cost ultimately chips away at the reduced sailing time from British Columbia to Asia (15 days), compared to the US Gulf Coast-Asia route (almost a month).
The Canadian Energy Research Institute has estimated that Vancouver-Asia shipping rates are about $10/mt cheaper than USGC-Asia.
But even this cost advantage gets somewhat hampered by port restrictions at Vancouver. The largest ships this port can handle are Aframaxes (500,000-700,000 barrels). US Gulf Coast ports can handle Suezmaxes (1 million barrels) and VLCCs (up to 2 million barrels). The Vancouver port’s bottleneck is largely due to environmental resistance, as well as some geographical issues. Because of the smaller cargo size, some 90% of Canadian crude exports have headed for ports in the US, simply because it is uneconomic for a ship of that smaller size to make the longer trek to Asia.
While chemical tankers are much smaller in size than an Aframax, the rail costs and shipping rates ultimately nullify the seeming cost advantage the reduced sailing time to Asia could offer.
The US Gulf Coast, however, offers increased optionality to markets to both East and West, while still maintaining attractive netbacks, thanks to the larger tanker sizes permitted. With crackers located close to well-equipped deepwater ports and pipeline access to those terminals, NOVA certainly ups its export potential to markets beyond the US going forward. -- Samantha Hartke
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