business

PETROCHEMICALS: DARK SKIES AHEAD Producers prepare for delayed downturn, gauge impact of Asian financial crisis

Paige Marie Morse C&EN Houston

The petrochemical industry's cycles are as predictable as the rising and setting of the sun, with profitability

climbing and falling in synchrony with tight markets and the inevitable overca­pacity that follows. But few find these sunsets attractive.

The next year or two is likely to prove to be one of those dark periods that ev­eryone would like to avoid, especially with the growing concern about the po­tential negative impact of the Asian finan­cial crisis. Although 1997 was better than expected for most petrochemical pro­ducers, most industry analysts and partic­ipants expect that the descent that began in 1996 will resume in 1998.

Although some pet­rochemical producers may be tempted to bail out of the market dur­ing the down part of the cycle, abandoning these key building blocks of the chemical industry is not an option. Most pet­rochemical producers are inextricably linked to this market because of their integration in the oil and refining busi­ness, their significant feedstock needs for downstream business, or both.

Petrochemicals are tied to the world energy market, even though the chemicals require only 5% of all crude oil, natu­ral gas, and coal that are consumed globally. This market has its ups and downs and so must these chemicals, because demand can rise much Chevron's Cedar

more quickly than it takes to build or ex­pand a plant.

"Last year ended up as the second best year for petrochemicals in the 1990s," says Ronald J. Schuh, executive vice president for petrochemicals at Oc­cidental Chemical. "At this time in 1997, we did not expect those results."

After nine months of generally good results, fourth-quarter 1997 profits were flat for most petrochemical producers, showing that this brief positive period was ending (C&EN, Feb. 16, page 14). Most analysts expect that the slide will continue this year, with the cycle reach­ing bottom near 2000. The next peak is expected around 2002 or 2003.

"Cyclicality can be viewed as both a threat and an opportunity," says Kenneth M. Stern, managing director at the con-

Bayou petrochemical plant in Baytown, Texas.

suiting firm Chem Systems, Tarrytown, N.Y. Most companies respond to the threat, he says, but few take advantage of the opportunities.

"A producer might authorize a new plant during an upturn, but it comes on-stream after the peak and is ultimately di­vested near the low point of the next cy­cle," Stern says.

And 1998 is shaping up to be a typical year in the down part of the cycle. As the industry heads into a downturn, new plants are starting up at just the wrong time. Divestments may soon follow.

One difference from one cycle to the next is that profitability during the good times is sfirinking. Increasing global com­petition and the advancing age of the technology combine to reduce profits in markets with only moderate growth.

The growth rates for derivatives of the major petrochemicals ethylene, pro­pylene, and benzene reflect this change. Combined growth was generally solid, around 4 to 5% per year, during the peak in the past five years, but is expected to drop to 1 to 2% during the downturn of the next five years. In the following five years, 2002 to 2007, when a peak is ex­pected, derivative growth is anticipated to be a moderate 2 to 3% annually.

Several petrochemical companies are trying to find opportunities for higher growth and to lessen the swings of profit­ability by integrating further downstream. Some companies even have moved to spe­cialties businesses, hoping to dampen the cycles and increase profits with higher margin products. Another response is to join efforts with competitors through ac­quisitions, joint ventures, and mergers.

"With the upcoming industry down­turn, producers are trying to reduce costs where possible," says Steve Zinger, a con­sultant at Chemical Market Associates Inc. (CMAI), Houston. "Producers are looking at mergers and acquisitions to reduce costs and improve synergy."

Synergy was cited as a major driver for a large petrochemical joint venture formed in 1997. Millennium Chemical and Lyondell Petrochemicals combined their olefins and polymers businesses to create Equistar, which is now the largest U.S. pro­ducer of ethylene and high-density poly­ethylene (C&EN, Aug. 4, 1997, page 9).

Most analysts expect this restmcturing to continue as financial pressures force companies to find better ways to compete.

Ethylene Ethylene, the largest volume petro­

chemical, is often used as an indicator

MARCH 23, 1998 C&EN 17

business

Petrochemicals from natural gas

2CH4 + Oo + No

The term petrochemicals is used to de­scribe the fundamental building blocks of the chemical industry. As the root of the word implies, petroleum is the pri­mary feedstock for petrochemicals, but it is not the only feedstock.

In fact, according to SRI International, Menlo Park, Calif., only about half, 50.5%, of 1996 U.S. production of petrochemi­cals used crude petroleum as the feed­stock. The remaining production was from natural gas liquids, 39-9%; natural gas, 9.1%; and coal, 0.5%. The products considered petrochemicals are ethyl­ene, propylene, benzene, methanol, xylenes, tolu- ^ ^ — _ ene, and butadiene.

Most ethylene is pro­duced from natural gas liquids, which are the two- to four-carbon com­ponents usually present at levels of 5 to 10% in most natural gas streams. Crude is the primary source of propylene and aromatics, and natural gas is the main feedstock for methanol

Several companies are interested in expanding the use of natu­ral gas to make other chemicals, prima­rily olefins for chemicals and fuel. The fundamental Fischer-Tropsch chemis­try is known—and was practiced exten­sively by the Germans in World War Π— but the process is neither economical nor preferred when petroleum is readi­ly available and relatively inexpensive.

However, recent developments in deep-water drilling and remote gas field discovery have generated renewed in­terest in converstion of natural gas to chemicals and fuel, often called gas-to-liquid technology. The transport of nat­

ural gas is costly and demands special­ized cryogenic equipment or pipelines, leading many field developers to burn off the unused methane. The conver­sion of methane to liquid hydrocarbons allows for the use of conventional meth­ods of transport, significantly reducing costs and encouraging the development of smaller gas fields.

Also, liquid hydrocarbons generated from methane do not contain the sulfur and heavy-metal contaminants present in most crude petroleum. Cleaner feed­stocks translate to reduced processing

Catalyst

Air

Synthesis gas Catalyst

2CO + 4H 2 + N2 ν /

Y Synthesis gas

Hydrocarbons + C02 + H20 +

By-products

Syntroleum process uses air. With other processes, no nitrogen is present

costs and less down time for production facilities.

A few major chemical companies prac­tice gas-to-liquid technology, although not in the U.S., where crude is abundant and remains relatively inexpensive. And de­spite the perceived high costs, gas-to-liquid technology continues to be the subject of many research programs.

Johannesburg, South Africa-based Sa-sol has several gas-to-liquid units to make hydrocarbons for fuel and chemicals at three plants in South Africa. The carbon monoxide and hydrogen mixture for these units, called synthesis gas, is de­

rived from both coal and natural gas and the products are α-olefins with two to 14 carbons.

In the past few years, Sasol has begun to isolate specific α-olefin streams for chemical use, instead of using the blends as components for fuels. Hexene, which is used as a comonomer in linear low-density polyethylene, is Sasol's dominant product. Sasol is building a new plant, slated for completion next year, to make octene.

Shell Chemicals has operated a large plant in Malaysia since 1993, producing various hydrocarbons for solvents, waxes, and automotive fuels. This plant

is currently shut down fol-_ ^ _ lowing a Dec. 25 explosion

and fire in the air separa­tion unit, which supplies ox­ygen to make synthesis gas. Shell has not announced when the unit will return to service.

Beginning in 1985, Mobil Chemical had practiced its proprietary gas-to-liquid technology at a plant in New Zealand. This plant made fuels, producing hy­drocarbons of five or more carbons, and the process

involved the intermediate step of mak­ing methanol from synthesis gas. Mobil sold the plant to Canadian methanol producer Methanex in 1993, but it main­tains an active research program in the technology.

Exxon recently entered the market with an announcement about its propri­etary technology at the World Confer­ence on Refining Technology & Refor­mulated Fuels in San Antonio. Follow­ing a two-year demonstration unit run at R&D facilities in Louisiana and a 1995 feasibility study, Exxon and Qatar Gen­eral Petroleum Corp. are discussing a

N2

for the industry. It is poised for a major downturn over the next year or two, following the surprising upswing in 1997. Last year was expected to be a poor year financially because economic indicators were falling and large capaci­ty increases were expected at Chevron, Union Carbide, Exxon, and Westlake. However, producers saw unexpectedly positive results because the U.S. econo­my remained strong and two major plant outages and one delayed proj­ect—which could not be predicted at the start of the year—combined to limit oversupply (C&EN, Sept. 15, 1997, page 20).

An early summer explosion and fire at

an olefins unit of Shell's Deer Park, Tex­as, chemical complex shut down almost 2 billion lb of ethylene capacity for more than seven months.

With obvious frustration, David Al-dous, general manager of light olefins for the Americas at Shell Chemicals, says: "[The incident] was very bad timing— the market was strong and margins were good for ethylene suppliers. Overall, it was an unfortunate time to lose signifi­cant production."

Shell's plant resumed production on Feb. 3 this year, several weeks ahead of schedule. "We worked hard to make sure that we would come back as soon as possible," says Aldous.

Also, Chevron's Port Arthur, Texas, plant had a difficult time coming up after a late-summer 700 million-lb-per-year ex­pansion and maintenance project, lead­ing to lower production than expected through October.

Timing for an expansion project at Union Carbide's Taft, La., facility slipped from late in 1997 to first-quarter 1998 be­cause of engineering and construction problems, and the project is now sched­uled for the third quarter. When it is com­plete, the annual capacity at that site will increase from 1.5 billion lb to 2.2 bil­lion lb.

Other ethylene capacity changes near­ly offset each other with Phillips bringing

18 MARCH 23, 1998 C&EN

possible commercial project for a gas field in Qatar.

Another new entrant to this market is Syntroleum Corp. of Tulsa. A small company among the petrochemical gi­ants, Syntroleum has been effective in attracting attention to its gas-to-liquid technology. Syntroleum claims that the advantage of its process is that air, instead of oxygen, can be used to con­vert methane to synthesis gas, signifi­cantly reducing the capital investment required. Also, in contrast to the Shell and Exxon methods, which rely on large gas fields to be economical, Syn­troleum claims its process can be used for smaller fields.

Syntroleum's process has not yet been used commercially, but a few companies have licensed the technology, including Texaco (C&EN, Dec. 15, 1997, page 14), Arco, Marathon, and Kerr-McGee.

The Houston-based energy company Enron recently licensed the Syntroleum technology and is participating in the first U.S. gas-to-liquid plant, which will be built in Sweetwater, Wyo. The plant will produce 8,000 barrels per day of hy­drocarbons for synthetic lubricants, drilling fluids, and paraffins. Construc­tion will begin later this year with com­pletion expected in 2001.

Syntroleum also offers a gas-to-liquid plant design that can be mounted on a barge and moved to natural gas well op­erations at sea. Sasol is investigating a similar approach with its technology in a joint project with Norway's Statoil (C&EN, April 21,1997, page 16).

The great challenge for gas-to-liquid technology always has been the eco­nomics of the process versus the cost of petroleum feedstock. With a barrel of Brent crude—an industry benchmark for pricing—recently dropping to its lowest price in nine years, it continues to be a challenging sell.

up a 400 million-lb-per-year unit at its Sweeny, Texas, site and Dow Chemical closing its 600 million-lb-per-year unit in Freeport, Texas.

As a result of outages, ethylene in­ventory levels at the end of the third quarter, as reported by the National Pe­troleum Refiners Association (NPRA), fell to 1.1 billion lb. "The U.S. ethylene industry operated with some of the lowest inventory levels in its history, at seven to nine days of supply," says Mark Eramo, CMAI's director of light olefins. Average open market ethylene prices in 1997 were 20.5 cents per lb, providing a cash margin of 9.0 cents per lb.

However, by the end of the year, both Exxon and Westlake had brought on new crackers, adding an additional 2.6 billion lb of ethylene capacity in addition to Shell's Deer Park unit that returned to ser­vice last month. First-quarter figures are not yet available, but inventories are ex­pected to have rapidly climbed back to moderate levels.

The capacity growth is not over. Sam­uel M. Weinberger, planning manager for ethylene at Exxon Chemical, cautions that increases in capacity over the next few years are "significantly more than de­mand growth."

Specifically, Weinberger says, at 3% annual growth, the 50 billion lb or so U.S. ethylene market needs an additional 1.5 billion lb of capacity each year to keep up with demand. Average annual capacity growth, prorated from the month the plants go onstream, is much more: esti­mated at 2.0 billion lb for 1997, 3.6 bil­lion lb for 1998, 1.3 billion lb for 1999, and 2.2 billion lb for 2000. Total ethyl­ene production in 1997 grew 4% over 1996, according to NPRA figures.

"All of this excess capacity will result in lower operating rates," says CMAI's Eramo, "leading to reduced pricing and lower margins, and this has already begun."

Enrique J. Sosa, ex­ecutive vice president for chemicals at Amo­co Corp., has a less grim view, saying much of the concern about overcapacity is unwarranted and has more to do with per­ception than reality. "Unfortunately, the psychology of the market reacts to big new facilities coming [onstream], assuming excess supply and forcing prices down," he explains. "The re­ality is that the capac­ities get absorbed quickly because not all of the crackers run all of the time at full capacity, with turn­arounds and hiccups occurring."

John Peppercorn, president of Chevron Chemical, adds that the large number of planned outages for

maintenance work and catalyst regenera­tion, called turnarounds, expected this year, will probably lessen the impact of the new facilities. "The combination of all of the turnarounds set for this year total one world-scale cracker, or about 1.7 billion lb." He also notes that these maintenance projects are needed because many were delayed to take advantage of the good market last fall.

One of those turnarounds will be at OxyChem's Lake Charles, La., site, where a maintenance and expansion project of 50 million lb is planned for April. Howev­er, because of excess supply in the ethyl­ene market, the company is planning to optimize the turnaround schedule and expects to be down about 50 days, in­stead of 30 days.

Shell is not planning any turnarounds in 1998 but has a few projects set for 1999, says Aldous. Process improvement projects are planned at the company's Norco, La., and Deer Park sites that will add an additional 1.2 billion lb of annual ethylene production. Final approval for these projects is expected this week.

However, local capacity increases are only one reason for reduced margins and demand. Another concern is reduced ex­ports because of financial instability in Asia. Ethylene itself is not usually shipped

Most U.S. petrochemical producers also have downstream operations

Equistar

Exxon Chemical Dow Chemical

Shell Chemicals Phillips Petroleum

Union Carbide

Occidental Chemical Chevron

Amoco Chemical

Annual capacity

Ethylene (billions

of lb)

7.8

6.2

5.4

4.9

4.5

4.2

3.6

3.3

3.3

Propylene Benzene (billions (millions

of lb) of gal)

2.2 90

3.3 300

1.6 220

3.0 240

1.2 20

0.8 —

1.6 180

2.2 240

2.6 245

Note: C&EN estimates for year-end 1998.

Downstream integration

Polyethylene, polypropylene Polyethylene, polypropylene Polyethylene, propylene oxide, polystyrene α-Olefins, solvents Polyethylene, polypropylene, cyclohexane

Ethylene oxide, polyethylene, polypropylene Ethylene dichloride Polyethylene, α-olefins, p-xylene α-Olefins, polypropylene, terephthalic acid

MARCH 23, 1998 C&EN 19

business U^^PHT''"'

Polyethylene accounts for more than half of ethylene use Ethylene oligomers

5%

Other3

5%

Ethylbenzene 6%

Ethylene oxide 15%

HDPE 24%

% annual growth 8

Ethylene dichloride

16%

LLDPE 14%

LDPE 15% I Full

Β1992-97 D1997-2002 • 2002-07

Il ni III 1997 demand = 60.9 billion lbb

HDPE = high-density polyethylene. LDPE = low-density polyethylene. LLDPE = linear low-density polyethylene.

/ / S / V ^ 4

<b #

a Includes vinyl acetate, acetaldehyde, ethylene-propylene rubber, and ethanol. b North America. Source: SRI Consulting

abroad but is moved locally by pipeline. But ethylene derivatives are traded interna­tionally—about 15% of U.S. and Canadian polyethylene production and 17% of poly­ethylene terephthalate production, which uses ethylene glycol, are exported, accord­ing to statistics from the Society of the Plastics Industry (SPI).

"The Asian currency crisis began to affect the industry in the fourth quarter of 1997," says Eramo. "Asian countries dramatically reduced imports of key eth­ylene derivatives such as ethylene glycol and ethylene dichloride."

Another effect of the reduced deriva­tive demand is a softening of prices.

"Asian producers are selling product at lower prices to obtain U.S. currency," says Paul Bjacek, director of the World Petrochemicals Program at SRI Consult­ing. "The effect is decreasing prices in global markets, especially for polyethyl­ene"—the largest end use for ethylene.

The extent of the impact of the Asian situation is difficult to predict, ei­ther in terms of prices or time. Most producers have begun internal efforts to minimize the potential damage from the crisis.

"We are managing with the expecta­tion that the severity of the crisis hasn't played out fully yet," says Amoco's Sosa.

"We are being very conservative in our estimates and disciplined in our costs."

OxyChem is trying to set some boundaries, according to Schuh: "By midyear, we expect that the prob­lem in Asia will begin to correct it­self. Export volumes will recover first, and then prices will follow."

Schuh also points out that growth is still expected for most ethylene derivatives in Asia, al­though the rates are reduced. "We had a derivative growth rate for all Asian countries combined near 10%—it will now be 4 to 5% for this year."

Chem Systems predicts that growth rates for commodity poly­mers will be 25% less than expected in 2000 for most Asian countries, because of reduced economic growth rates. However, despite the

slowdown, Bruce H. Pickover, Chem Sys­tems vice president, says, "Southeast Asia is expected to recover and account for over half of the world's growth in petro­chemical demand in the next decade."

Despite the short-term financial con­cerns, most companies agree that the fi­nancial crisis in Asia will have a positive long-term impact on the petrochemical industry by limiting the rapid expansion planned in that region.

"Asia was on the path of almost un­controlled expansion of petrochemical capacities," says Henry Roth, global busi­ness manager for olefins at Dow Chemi­cal. "Having some of those projects

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Polypropylene is the dominant derivative for propylene Isopropyl alcohol Other3 o/o a n n u a , g r o w t h

.. 3% , 8% Polypropylene 1 Ω Γ - - _ ^ _ _ Acrylic acid 5%

Oxo alcohols

7% Cumene

8%

H1992-97 Β 2002-07 D1997-2002

Propylene oxide 10% Acrylonitrile

13%

1997 demand = 31.0 billion lbb

a Includes nonene, dodecene, allyl chloride, ethylene-propylene rubber, and heptenes. b North America. Source: SRI Consulting

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• about 2001 for the recovery, in­stead of 2002 or 2003."

However, Roth adds, the short-term impact is that the buildup of capacities in the U.S. and also in the Middle East will be more difficult to absorb because of reduced global demand.

Another uncertainty about the Asian crisis is its effect on the U.S. economy. "The adjustment in Asia is in the process of spreading to the U.S.," says Chevron's Pepper­corn. "It is unclear what the im­pact will be on gross domestic product in the U.S., and GDP tends to drive the demand for many pet­rochemical products."

The financial crisis in Asia also has reduced demand for petro­leum feedstocks used for chemi­cals and energy, contributing to a

decline in feedstock prices. Domestic oil prices have fallen more than 30% since early October, with Brent crude—an in­dustry benchmark—now priced near $12 per barrel, down from near $25 last spring.

And lower feedstock prices translate to better margins for petrochemical pro­ducers. "All of the feedstocks that go into crackers are substantially lower priced," says Schuh. "There is a reduction in mar­gins overall, because of the capacity in­crease, but not as much as anticipated if crude prices had held. However, more than likely, crude prices will go back up to the typical range near $18 to $20 per bbl and then ethylene margins could be squeezed."

Propylene Feedstock prices also have an impact

on margins for propylene and its deriva­tives. Prices have fallen in recent months because inventory levels grew at the end of 1997, but, fortunately for many pro­ducers, lower crude prices helped to minimize the margin loss.

This inventory buildup followed sev­eral months of strong demand and high prices, near 23 cents per lb for polymer grade, that encouraged refinery opera­tors to extract propylene from their product streams. Propylene prices have since fallen 40%, to about 13 cents per lb, and are expected to stabilize at this level, according to CMAI's Zinger.

NPRA inventory figures for propylene at the end of fourth-quarter 1997 were 1.7 billion lb, or more than 20 days of in­ventory, compared with less than 1.2 bil­lion lb for the same period in 1996. Total

22 MARCH 23, 1998 C&EN

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Ethylbenzene is the largest end use for benzene

Nitrobenzene 5%

Cyclohexane 13%

Othera Ethylbenzene % annual growth 15% 46% 6

y

5

4

3

2

1

0

/ &

Cumene 21%

1997 demand = 2.72 billion galb u • 1992-97 Β 2002-07

- D1997-2002

1 1 1 1 Mi Lllli a Includes maleic anhydride, alkylbenzenes, and chlorobenzenes. b North America. Source: SRI Consulting

•3?

/

propylene production for the year grew 97% over 1996.

This inventory buildup may worsen before it gets better because of declining demand for propylene derivatives in Asia. Zinger reports that some Asian countries have recently become net ex­porters, instead of importers, of propyl­ene derivatives. Nearly 10% of U.S. and Canadian polypropylene is exported, ac­cording to SPI statistics, and it is expect­ed to be hit hard in Asia because of its use in durable goods.

The longer term prospects for propyl­ene are not as grim because of concerns about availability. About 70% of propylene is produced in steam crackers, as a lesser

coproduct of ethylene production. With propylene expected to grow faster than ethylene in the next several years, primari­ly driven by the high growth of polypro­pylene, many analysts are warning that propylene supplies may be inadequate in the near future.

Specifically, Chem Systems predicts growth for ethylene at 1.25 times the U.S. GDP and propylene at 1.6 times GDP. At these rates, almost 5 billion lb per year of additional propylene must come from refineries by 2000 to make up the difference from steam cracker production.

Some producers, however, do not agree that any problem exists. Dow's Roth

calls such concerns "an absolute fa­ble," noting that refiners always jump into the market when prices are high.

Despite the debate, several com­panies are addressing this potential imbalance through a variety of dif­ferent technologies.

"We are looking at some proj­ects that will significantly increase our propylene production, beyond the 600 million lb that will be added from the olefin process improve­ment projects planned for Norco and Deer Park," says Shell's Aldous. The projects include "catalyst changes to improve refinery-grade propylene production." Recent im­provements in catalysts for fluidized catalytic cracker units have higher selectivity toward propylene.

Olefin metathesis technology, which uses a stream of ethylene and mixed butènes to make propylene, offers additional propylene quantities over steam cracking. However, it is cost-effec­tive only in certain cases.

The key is that the stream of two-carbon chain and four-carbon chain prod­ucts "needs to be clearly valued below market alternatives," says Roth. "A less pure refinery stream, for example, can provide good economics. Metathesis is not a solution for everybody, but it makes a lot of sense if there is synergy between part­ners where one is a refiner and the other is a large propylene consumer."

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BASF announced last fall. The partners, a refiner and a major polypropylene pro­ducer, plan to build a metathesis unit to produce 1.8 billion lb of ethylene and 1.95 billion lb of propylene. Construc­tion is expected to begin later this year with completion set for 2000.

Propane dehydrogenation also can be used to make propylene, but this method currently is not used in the U.S. This pro­cess is used for less than 2% of propylene production worldwide.

Benzene In contrast to propylene, the benzene

market seems to suffer from too many routes of production. The variety of pro­cesses that yield benzene, either as a coproduct or on purpose, combine to give a market that is difficult to forecast and has large swings in pricing.

"Benzene can be produced from a va­riety of different sources and its value in a lot of [derivative] chains is different," says Chevron's Sharum. "It is difficult to predict what the ultimate demand is go­ing to be and equally difficult to predict what the supply is going to be."

He adds that lower inventory levels carried by producers and customers are also a factor in large price swings. "When there are short-term supply-and-demand disruptions, everyone needs the product badly, leading to more price volatility."

OxyChem's Schuh describes the re­cent volatility saying: "Contract prices moved from 90 cents to $1.15 per gal. Then in January, [the market] collapsed. Open-market prices fell to 80 cents in late January and then 75 cents in Febru­ary. It was one of the largest price drops in recent history."

The large price changes are also brought about because a few producers, including Dow and British Petroleum, use on-demand production units when prices get high enough to justify the economics of those plants. These hydrodealkylation (HDA) units convert toluene to benzene and are used to fill the demand gap for benzene. Historically, HDA was a domi­nant technology for on-purpose benzene production, but its use is declining.

Benzene now is produced primarily by coproduct routes, and the operating rates are driven by the need for the oth­er product. Catalytic reformate is used to produce gasoline, and pyrolysis gas is used to make ethylene; coal tar distillates are used to produce coke, and toluene disproportionation distillates are used to make xylenes.

In recent years, toluene disproportion­ation (TDP), which converts toluene to benzene and xylenes, has begun to dis­place HDA production. The change is driv­en by the strong demand for p-xylene, which is converted to terephthalic acid for use in polyethylene terephthalate.

SRI Consulting reports that in 1997, TDP was used for 13% of benzene pro­duction in North America, up from just 2.5% in 1992. In the same period, HDA production declined, from 21.5% in 1992 to 13% in 1997. Little change is expected in the next five years, with TDP predict­

ed to account for 14% of benzene pro­duction and HDA predicted to account for 11% of production.

"The TDP route has taken the toluene to make xylenes for terephthalic acid," says Schuh. This practice usually draws "the toluene price up to a level where it is not profitable to use toluene for only benzene production."

Chevron's Peppercorn agrees, saying: "As a result of the technology change, the price level for benzene has shifted down and probably will remain 10 to 20% lower than it used to be, except

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MARCH 23, 1998 C&EN 25

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business when demand in unusually strong. This change demands that producers keep their costs down."

The continued closings of HDA facili­ties show the success of TDP. OxyChem shut its HDA unit a few years ago, and Schuh says they are now looking at alter­native applications for the Chocolate Bayou, Texas, unit. Chevron closed its Port Arthur facility and, in 1996, Phillips converted its Puerto Rican HDA unit to the TDP process.

Guy Sutherland, vice president for chem­icals at Phillips Petroleum, says all HDA units should be shuttered. "Until HDA units are permanently shut down, there will be an oversupply of benzene resulting in poorer-than-normal margins in benzene extraction and naphtha reforming."

The occasional use of HDA units is not the only reason for the poor benzene market, according to Keith Howson, aro-matics business manager at Dow. "The whole envelope of pricing has eroded in the past three months and it is hard to point to only a single cause. It is combi­nation of the cycle affecting the deriva­tives, the crisis in Asia, and a weak ener­gy market worldwide."

The recent lowering of feedstock prices has given some relief to produc­ers, but not for long. "The big danger is that feedstock prices will firm up and then rise soon," says Peppercorn. "Then it will be very difficult for us to pass that through to customers in a timely man­ner. This is a real concern and threat to profitability for the aromatics business."

Also, the ease in shipping benzene, in contrast to the light olefins, suggests that the threat of cheap imports is possible. U.S. imports decreased in 1997, to 90 mil­lion gal from 160 million gal in 1996, pri­marily owing to increased domestic pro­duction from disproportionation units, but this number may rise if the Asian de­mand remains low.

In a market that is growing at only 0.8 times GDP, according to Chem Systems, the competitive pressure on producers is significant.

Although this year may prove to be challenging for producers of benzene and light olefins, many appear to be pre­pared for the turbulence and uncertainty ahead. This is a routine that producers know well.

"A lot of us have been planning, knowing that 1998 was going to be tough," says Amoco's Sosa. "We are adjust­ing things slightly to account for the Asian crisis, but fundamentally we are staying the course."^

CIRCLE 9 ON READER SERVICE CARD

2 6 MARCH 23, 1998 C&EN

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