Industrial Chemical Raw Materials Shortage
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  • June 02, 2020

A lingering chemical raw materials shortage triggered by Hurricane Harvey has the potential to temporarily halt production at some of Louisiana’s chemical plants if it lasts long enough, experts said Friday, while another downplayed the likelihood.

Texas produces the vast majority of the country’s ethylene, a natural gas liquid that’s a key building block for Louisiana’s chemical makers.

A Friday report from financial services firm IHS Markit shows more than 50 percent of the country’s ethylene production is offline and that it could be weeks before those plants return to pre-Harvey production levels. Financial consultants Jefferies predicts November.

“The risk they face is that Louisiana doesn’t produce very much in the way of those natural gas liquids so it all comes from points west via pipeline,” said Eric Smith, associate director of Tulane University’s Energy Institute.

If the pipelines or the natural gas processing plants are disrupted, Louisiana’s chemical plants could take a hit, Smith said. Right now, the chemical plants in Lake Charles and along the Mississippi River are probably running on existing inventory.

At some point that supply will run out; the hope is the plants in Texas get back online soon enough to prevent that, Smith said.

David Dismukes, executive director of the LSU Center for Energy Studies, said short-run disruptions are to be expected because the hurricane jammed up the entire supply chain.

But chemical plants in Louisiana can get raw materials from sources other than pipelines, such as barges, Dismukes said. It’s not clear that the disruption will be as major as some believe.

“Either I’m really missing something or people are trying to make something out of nothing,” Dismukes said. “I just don’t get it.”

There are going to be some bumps for the next week to two weeks as operations in Texas come back online, he said. But one of the things that Hurricanes Katrina and Rita, and other storms that followed, taught Louisiana is that this infrastructure is “amazingly resilient.”

The refineries and industrial plants were the one part of the economy that seemed to know what they were doing when it came to the hurricanes, he said. While major issues with housing and rebuilding dragged on for months and even years, restarting the plants and reorienting the supply chain happened quickly.

“I don’t think we’re going to have a lot of olefins plants shutting down here any time soon,” Dismukes said.
Meanwhile, a large inventory of ethylene is allowing Baton Rouge area chemical plants to operate in the short term, said Steve Lewandowski, vice president of Global Olefins at IHS Markit.

“There are some days of supply there so that they can probably manage for a while. How long exactly is not 100 percent clear,” Lewandowski said.

Normally, plants keep 10 days of inventory on hand. Smaller plants may store less, while larger facilities may keep more, Lewandowski said. There are other sources of natural gas liquids, such as pipelines from Dow and Shell, that could help. In order for that to happen, the Houston plants have to come online.

It’s too early to say now whether the plants that use ethylene in manufacturing may be forced to shut down, he said.
Smith said the chemical manufacturing plants don’t have much in the way of options when it comes to cutting back on production. “They either run or they don’t run,” he said.

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