Future for Olefins Petrochemical Market Appears Bright for Next Five to 10 Years

THE CURRENT growth in the ethylene and propylene (olefins) derivatives petrochemical market is expected to be sustained for the next five to 10 years, said Richard Stellman, president of The Pace Consultants Inc, Houston, Texas. He predicted an annual 1% growth in United States refining products.

In addition, he forecast a majority of the refining growth to be in the Gulf Coast area, which would boost the need for additional storage in the areas of the United States in which the product would be distributed.

However, continued government controls related to environmental issues are likely to affect the pattern of that growth. Merger mania is one consequence of regulations and their influence on the market. Costs of compliance are helping to drive company consolidations. Stellman discussed the changing market and its effect on terminal operations at the Independent Liquid Terminals Association meeting June 14-17 in Houston, Texas.

Another subject issue is methyl tertiary butyl ether (MTBE), a chemical blended into unleaded gasoline that reduces emissions and helps cities and states meet strict federal clean air standards by increasing the oxygen content in the fuel. Because trace amounts of MTBE have been found in trace amounts of drinking water, concern has arisen over its use.

California has banned MTBE by the year 2003 and officials in Texas, New Hampshire, New Jersey, and Maine are studying its effects in their areas, said Stellman.

When the California ban occurs, shipments of methanol and MTBE to that state would end, but would be replaced by other blend stocks. It's just one more example of the consequences government regulations can provoke.

Another market impact could come from a clean air proposal by the Environmental Protection Agency (EPA). The proposal would have refiners scrambling to install processing units for 90% sulfur reduction in gasoline. "Diesel is also involved in this," said Stellman.

The proposal has been put on hold after a United States Court of Appeals decided May 14, 1999, to set it aside. It had been challenged by the American Trucking Associations.

If the proposal eventually goes into effect, costs are expected to rise for investors and consumers. "It's going to be expensive," said Stellman. More manpower would be tied up in documentation and tracking of sulfur, both contributors to added cost.

The American Petroleum Institute estimates the cost of making gasoline could increase by more than $7 billion per year, equivalent to about five to six cents per gallon. Several sectors of the oil refining industry are arguing that compliance will be excessively expensive.

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