According to Wood Mackenzie, the loss in demand and storage limitations from Hurricane Harvey will affect NGL prices. 2015's Memorial Day flood massively impacted NGL prices and curve structure due to floodwater-led storage constraints.  Propane traded at a record low 24 percent of WTI, and traders would pay an astounding 5 c/gal for one month of LPG storage space. Ethane has the biggest risk for a 10-20 percent price collapse from Harvey, as inventories persist over 50 million barrels while nearly half of total ethane demand is offline.

The impact of Harvey is the loss of 7-9 percent of the global ethylene capacity base. Most steam cracker complexes in the U.S. have also stopped production at downstream derivatives (polyethylene, PVC, etc). This largely contains the impact on pricing and volumes to within the U.S. value chain. Global olefins and derivatives markets were in a relatively tight spot heading into the event, with the market bracing itself for the start-ups of Dow Chemical’s LHC-9 steam cracker unit and Enterprise's PDH unit in Q3 2017. Any delays to the start of these units extends the current period of strong margins.

Most of the US Paraxylene (PX) assets are located within refineries impacted by Hurricane Harvey. None of the North American PX consuming assets are impacted so the worry for regional consumers will firstly be in securing supply and subsequently that U.S. PX prices may spike in September if the outages are prolonged. Around 30 percent of total U.S. benzene capacity is currently offline, but the upward impact of this on pricing has been mitigated by various derivative outages as well. Combined with the loss of ethylene capacity, U.S. styrene output has also been significantly affected by Harvey. With the U.S. acting as a key global exporter of styrene, the impact on logistics and freight movements is also expected to ripple through the global markets over the coming weeks.

Wood Mackenzie

www.woodmac.com