World’s most crucial chemical suddenly in short supply on Harvey
Many Americans have probably never heard of ethylene, but this colorless, flammable gas is arguably the most important petrochemical on the planet — and much of it comes from the hurricane-stricken Gulf Coast.
Ethylene is a big reason that Hurricane Harvey’s damage to the chemical communities along the Gulf of Mexico is likely to ripple through U.S. manufacturing of essential items from milk jugs to mattresses.
“Ethylene really is the major petrochemical that impacts the entire industry,” said Chirag Kothari, an analyst at consultant Nexant. Texas alone produces nearly three-quarters of the country’s supply of one of the most basic chemical building blocks. Ethylene is the foundation for making plastics essential to U.S. consumer and industrial goods, feeding into car parts used by Detroit and diapers sold by Walmart stores.
With Harvey’s floods shutting down almost all the state’s plants, 61 percent of U.S. ethylene capacity has been closed, according to PetroChemWire. Production may not return to pre-storm levels until November, according to Jefferies.
Ethylene occurs naturally — it’s the gas given off by fruit as it ripens. But it also lies at the heart of the $3.5 trillion global chemical industry, with factories pumping out 146 million tons last year, Kothari said Thursday.
Uses for ethylene
Processing plants turn the chemical into polyethylene, the world’s most common plastic that’s used in garbage bags and food packaging. When transformed into ethylene glycol, it’s the antifreeze that keeps engines and airplane wings from freezing in winter, and it becomes the polyester used in textiles and water bottles.
Ethylene is an ingredient in vinyl products such as PVC pipes used to bring water to homes, lifesaving medical devices and cushy sneaker soles. It helps combat global warming with polystyrene foam insulation and lighter, fuel-saving plastic auto parts. It helps commuters get to work safely when made into synthetic rubber found in tires. It’s even an ingredient in house paints and chewing gum.
The chemical is made by starting with oil or natural gas, then steamheating it to 1,500 degrees Fahrenheit inside massive furnaces that crack apart the molecular bonds. The resulting ethylene gas is separated from co-products such as propylene, and then piped to other production units for conversion to a vast array of products.
Ethylene and its derivatives account for about 40 percent of global chemical sales, said Hassan Ahmed, an analyst at Alembic Global Advisors. The U.S. accounts for one of every five tons on the market, and ethylene plants globally were running nearly full out to meet rising demand before Harvey, he said.
“So any little hiccup — and this is much beyond a hiccup — will dramatically tighten supply-demand balances,’’ Ahmed said Thursday.
While Gulf Coast chemical plants are designed to withstand hurricaneforce winds and floods, Harvey has thrust the industry into uncharted territory.
“The combination of Harvey’s path, duration and rainfall total is wreaking havoc with the supply side of the U.S. chemicals industry on an unprecedented scale,” said Kevin McCarthy, an equity analyst at Vertical Research Partners.
The sudden dearth of ethylene and other materials is being felt up and down the supply chain. More than half of the country’s capacity for making polyethylene plastic has been shut down in the past week. More than 60 percent of production of polypropylene, another plastic, has been curtailed.