North American Ethylene Feedstocks

Published July 2006

The North American ethylene feedstock situation has undergone dramatic changes since late 2000. These changes were driven initially by fears of shortages in natural gas supplies, then more recently, by tropical storms that actually disrupted both natural gas and NGL supplies on the US Gulf Coast. Finally, escalating international geopolitical events have had a huge detrimental effect by threatening heavy feedstock supplies. The gross effect of these situations has created an environment of record high prices for feedstocks as well as significant increases in price volatility that has had the short term effect of reducing the North American petrochemical industry�s cash margins and made them less competitive in international markets.

While it appeared that rising NGL prices would push the North American ethylene industry toward heavier feedstocks, like their counterparts in the rest of the world, it now appears that the rise in crude oil prices has more than offset whatever disadvantage that created. In addition to that, new long term supplies of NGLs brought about by increases in exploration and production activity and huge investments in coastal LNG receiving terminals should keep the North American industry more than adequately supplied.

The long term effect of these additions in supplies, and the fact that NGLs are the most efficient feedstocks to ethylene and propylene, should keep the North American ethylene industry focused on NGLs as its major feedstock. This should maintain its ability to remain competitive in international markets even though that demand will gradually decline because of increased capacity in local markets.