More Ethylene from Lyondell – Unlikely to Discourage Others
Today, Lyondell announced that it is studying yet another ethylene expansion in the US and that once complete by the end of 2017 the company will have added as much as 2.4 billion pounds of capacity through plant expansions over a 4 year period. This is as much as, and in some cases more than, many of the companies planning new capacity will be adding. Recent capacity expansion are summarized in the chart provided by Wood Mackenzie below.
The LYB expansions make good economic sense in that they are a fraction of the cost, on an installed pound or ton basis, than the new facilities and they can be brought on line quite quickly – we would be surprised to see any of the new-build running before the end of 2017, maybe CP Chemicals and Exxon. LYB is adding some new derivative capacity to consume ethylene in the US, but has yet to announce enough to consume all of its expected new supply. LYB needs to do this otherwise it will be adding to what we think will be a destructive ethylene surplus in the US by 2018.
Unless LYB acquires one of the major US ethylene consumers, or does some sort of cost based supply deal with one of them, we do not think that LYB’s actions will slowdown plans to build by others. The second wave of expected ethylene additions in the US is dominated by current ethylene buyers looking to back-integrate and they will keep going unless someone offers them an incentive to stop. While LYB’s expansion probably makes great economic sense for LYB, unless it helps to displace other plans it will only add to an ethylene/ethylene derivative surplus in the US. The US becomes increasingly reliant on exports – see recent research – and this only makes sense if the oil/US natural gas differential remains high. In our view, companies like LYB should be making pro-active moves to ensure that some of the planned new capacity in the US does not get built.