Last week’s winter storm has paralysed U.S. petrochemical production and disrupted 15 per cent of the global olefins market, according to Wood Mackenzie.
Wood Mackenzie Principal Analyst, Patrick Kirby, said the recent cold snap in the U.S. has dramatically impacted the country’s petrochemical industry.
“The concentration of the winter storm has been particularly pronounced in Texas, which geographically represents the workhorse of the U.S. olefins industry,” Mr Kirby shared.
“The impact of extremely low temperatures, alongside the loss of gas and power supplies, has caused widespread disruption to U.S. olefins operations. The region is familiar with hurricane activity causing disruption to activities. However, the nature and operational impact of the unseasonably cold temperatures has been a surprise to many market participants.”
Genscape, Wood Mackenzie’s sister company, currently estimates that over 80 per cent of U.S. olefins capacity is offline. Additionally, capacity that is still online is most likely operating at reduced rates or impacted by wider supply chain disruptions.
“This is a significant impact to one of the world’s largest concentrations of olefins capacities, just under 20 per cent of the global total, and tops recent disruption seen in August 2020 from Hurricane Laura,” Mr Kirby said.
“U.S. olefins industry capacity has been in expansion mode over the last several years, facilitated by shale gas economics. The recent disruption is therefore impacting a larger base of the U.S. and global olefins supply.”
“Upstream and downstream disruptions will likely result in a staggered and complex capacity restart once immediate weather and power disruption issues pass. This could potentially extend the emergency from days to weeks before market continuity and stability returns,” he said.
Unplanned U.S. outages have combined with a strong consumption backdrop with the return of China from the Lunar New Year, seasonally higher demand patterns in Q2, and recovery in global demand moving through the evolution of the coronavirus pandemic.
Wood Mackenzie says the stage is looking set for a period of tightness and volatility in global olefins balances and prices.
One factor that is increasingly clear heading into early 2021 is the increasing fragility of global supply chains and the disruption that can arise from structural interconnectivity.
“For regions that are able to step up to meet the call on olefins and derivatives supply through the near-term, such as the Middle East and other locations, the opportunity and rewards are likely to be high,” Mr Kirby concluded.