Asia imports more ultra-light oil for plastics

SINGAPORE: Asia is benefiting from the revived ability of both the US and Iran to export more oil, though not for the use you might expect. Instead, think plastics. The lifting of the US export ban on crude and the end of sanctions on Iran, both coming this year, are dramatically expanding Asia’s ability to acquire an ultra-light oil known as condensate that can be refined to produce naphtha, the base component for the plastic used to make everything from packaging to toys and electronics.

South Korea’s Hyundai Oilbank Co and Singapore’s Jurong Aromatics Corp are among several Asian companies spending billions of dollars to build facilities called splitters that produce naphtha, boosting that business just as demand for the most commonly used plastics is set to grow by almost 50% within a decade, according to industry consultant Nexant Chemicals.

“Asian companies saw rising condensate production and decided to take advantage of it by building splitters,” said Lin Keh Yen, a spokesman for Taiwan’s Formosa Petrochemical Corp.

Condensate, a gas in the ground, “condenses” into a liquid when it hits the air. It’s processed into naphtha in a facility called a splitter, which is basically an oil distillation tower that separates the base product for plastics from other lighter and heavier hydrocarbons. Once split out, naphtha can be used as a feedstock for making polyethylene, polypropylene and related polymers, chemical compounds that bind naturally together.

“China demand is huge for everything, it’s still growing at a very fast pace and so is India,” said Ehsan Ul-Haq, an analyst at industry consultant KBC Energy Economics. “They convert plastic polymers into other things which are then exported. Naphtha demand continues to grow, and if you invest in a condensate splitter it’s going to be a profitable investment for a couple of years.”

After US energy production was boosted by the shale boom, the nation began exporting condensate last year as the government started easing a four-decade-long ban on crude exports. Then, in January, Iran also began shipping more overseas after international sanctions over its nuclear programme were lifted against the Persian Gulf state.

The surge in naphtha production has cut its prices in Asia relative to other regions. The fuel’s premium to European prices sank to US$1.50 a tonne on Sept 29, the narrowest spread since late 2012, according to data from PVM Oil Associates. The spread was at US$33.50 a tonne at the end of last year and is now at US$10.75.

A shrinking gap signals lower returns from shipping European cargoes to Asia, which is producing so much naphtha that it’s sent cargoes toward the west this year. About 350,000 tonnes of the feedstock loaded from the Middle East and 70,000 tonnes from India in September for delivery to European ports, according to shipping data compiled by Bloomberg. That’s after 165,000 tonnes loaded from the Middle East in August for shipment to Antwerp and Rotterdam.

“Like water, the trade flows reflect where the balances are,” said Diego Parilla, managing director of commodities at asset-management firm Old Mutual Global Investors. In South Korea, a condensate splitter jointly built by Lotte Chemical Corp and Hyundai Oilbank Co has begun commercial operations, according to an e-mailed statement from Hyundai on Nov 15. Lotte Chemical will receive about 1 million tonnes of naphtha annually from the plant.

A new 146,000 barrel-a-day splitter is also starting up this year in Qatar’s Ras Laffan, which will run on the Middle East producer’s Deodorized Field condensate.

In Singapore, Jurong Aromatics began commercial operations at a splitter earlier this year with feedstock supplied by Glencore Plc. – Bloomberg