Naphtha faces competition from natural gas liquids

July 6, 2017 By    

Growing competition from less costly natural gas liquid (NGL) feedstocks has contributed to a decrease in global demand for naphtha, according to research from IHS Markit.

Naphtha is a refined petroleum product derived from crude oil and marketed in heavy and light varieties. It’s an important feedstock for the production of petrochemicals and blendstock for gasoline.

Prior to the U.S. shale gas and tight oil renaissance, naphtha was the leading feedstock for petrochemical and gasoline production, says Nick Rados, senior director at IHS Markit and lead author of the IHS Markit analysis, “Light and Heavy Naphtha International Market Analysis: Balancing the Naphtha Surplus.”

However, the jump in ethane and propane feedstock production gave North American and Western European petrochemical producers a cheaper alternative to naphtha.

“Naphtha is no longer the dominant petrochemical feedstock it once was, thanks to competition from the surging production of NGLs, particularly ethane and propane,” Rados adds.

Natural gas liquids such as propane and ethane are giving petrochemical producers a lower-cost alternative to naphtha. In the bottom chart, a barrel of North American propane is currently about one-half the value of a barrel of Brent crude.

Because of this, the global market for naphtha will be oversupplied until at least 2020, according to the IHS Markit analysis. The analysis adds that the propane market is even more oversupplied, with increasing production coming from U.S. shale resources, as well as the Middle East and Russia.

“The current length in the propane shipping fleet, along with the opening of the Panama Canal expansion, supports incremental trade, but anticipated increase in crude and naphtha prices will drive even greater volumes of low-cost propane to Asia,” Rados says.

The report also says the abundance of petrochemical feedstocks is unlikely to end anytime soon, with countries investing in more naphtha production capacity.

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