Oil Price Shock Flattens the Cost Curve for Petrochemicals

This article first appeared on the BNEF mobile app and the Bloomberg Terminal.

  • Europe and Asia ethylene costs drop by 50% year-to-date
  • U.S. ethylene loses competitiveness, impacting global trade

The decline in oil prices and demand shock for gasoline has dragged down the price of naphtha, a major oil-based petrochemical feedstock. This has flattened the ethylene production cost curve as Asian and European ethylene producers have been able to source cheaper feedstock. Naphtha-based production costs have declined in Asia and Europe by 64% and 54% respectively since Jan. 2020.

Ethylene is the main basic petrochemical used to produce plastics and textiles. Most Asian and European producers use naphtha as feedstock, while ethane is the main feedstock in the U.S. Producer in U.S. have long enjoyed a cost advantage over naphtha-based competitors as the shale boom created a glut of ethane that kept U.S. feedstock prices low.

The flattening of the global cost curve, however, erodes this advantage, with costs converging across all regions. So long as naphtha prices remain suppressed, the outlook for U.S. ethylene-derived product exports will be dim.

Major ethylene producers in the U.S. include Dow, ExxonMobil and Shell Chemical.

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