WPC 2020: Naphtha—A tale of two markets

12:53 PM | April 3, 2020 | Mark Thomas

The outlook for naphtha as a petrochemical feedstock is “a tale of two markets,” with naphtha facing a short-term period of oversupply and disruption because of the coronavirus disease 2019 (COVID-19) pandemic and competition from natural gas liquids (NGLs), followed by tighter long-term supply/demand dynamics, according to IHS Markit’s Premasish Das.

Das, executive director/energy, and Darryl Rogers, vice president/midstream oil and NGL research and consulting at IHS Markit, were presenting their short- and long-term views on US NGL production, the outlook for worldwide refining, and how naphtha and NGLs fit into the global feedstocks supply mix, during the feedstock and refining integration track at the IHS Markit World Petrochemical Conference 2020 Online, which began Friday. Live WPC 2020 Online Forums will take place 7–8 April and 15–17 April.

Naphtha’s share as a feedstock of ethylene production has weakened over the past decade due to factors including increased availability of ethane and butane from the US, but it is still the dominant feedstock, says Das. Until the end of 2019, naphtha had been competing with NGLs, “but this competition can move toward a more complementary situation as the COVID-19 pandemic unfolds,” he says. The pandemic is expected to result in reduced US NGL supplies, as well as lower naphtha supply from refineries, leading to a tighter market.

More than 6 million b/d of refining capacity worldwide will be added by 2025, with 70% of that located in Asia and the Middle East, according to Das. However, in the short term the pandemic “has eroded refined products demand, particularly gasoline and jet fuel in all regions, and refinery runs will be reduced in 2020. We can expect naphtha supply to be reduced,” he says.

A downturn in US upstream activity due to the “glut of oil” caused by the pandemic and the oil price war between Russia and Saudi Arabia will result in a fall in US gas production, according to Rogers. “US gas production is going to fall as much as 10 billion cubic feet/day,” he says. The forecast for US propane output is a drop by almost 150,000 b/d to the end of 2021 while ethane availability will flatten over the same period due to a slowdown in bringing projects on-line, he adds. Exports have been the “clearing market,” but US NGL exports are expected to fall considerably in the short term to rebalance the market, says Rogers.

The second half of the current decade will see the need for naphtha as a feedstock rising as strong long-term growth in base chemicals demand continues and NGL production growth slows, according to Das. Demand growth for refined products will face downward pressure at the same time, intensifying the challenge for feedstock supply.

“The naphtha market is a tale of two markets. On one side it is oversupplied for the next few years, but in the longer run it will be a lot tighter. If we consider refineries running in a ‘business as usual’ mode, I don’t think that will be enough to meet petrochemical demand,” he says. Higher levels of refinery-petchem integration and new technologies such as crude oil–to–chemicals will be required to increase naphtha and chemicals yields and support long-term growth, he adds.