Markets Downplay War's Impact on Petrochemicals, Pipeline Executive Warns

Global Petrochemical Flows at Risk from Strait of Hormuz Closures

Investors are underestimating the impact of Strait of Hormuz closures on global petrochemical flows, according to Enterprise Products Partners LP Chief Executive Officer Jim Teague. Teague's comments add to a chorus of industry voices warning about lingering disruptions from the Iran war.

The Iran war has caused US petrochemical markets to skyrocket, with lost Middle East supply making American ethylene and propylene more attractive to buyers around the world. As a result, US producers are benefiting from both strong export demand and access to cheap petrochemical feedstocks. The disruption has already fractured Asian supply chains, with Asian plants that produce propylene operating below 50% capacity, according to Enterprise.

The money US producers make turning ethane to ethylene has more than tripled since the regional conflict began, reaching approximately 23 cents a pound. The so-called cracking spread to turn ethylene to polyethylene has more than doubled to 45 cents a pound. The increased profitability is due to the strong demand for ethane, a natural gas liquid, which is being used to produce ethylene.

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Enterprise Products Partners posted first-quarter revenue that topped the average estimate of analysts surveyed by Bloomberg. The company's natural gas liquids pipelines and services business, which includes some of the largest US LPG and ethane export facilities, saw a gross operating margin increase of almost 6% from the same period last year. The company also reported robust export activity, averaging about 70 million barrels per month across its US NGL docks in the quarter, while expecting to load more than 88 million barrels in April.

Shares of Enterprise Products Partners rose as much as 1.8% in New York after the pipeline company posted its quarterly results. The company's CEO, Jim Teague, noted that the company will ship out around 3 million barrels of ethylene in April, and that interest in ethane and propane remains strong globally, including continued appetite from international producers to convert cracking units to run on cheaper US feedstock.