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HP Brief

01.01.2013  |  Thinnes, Billy,  Hydrocarbon Processing Staff, Houston, TX

Keywords: [chemicals] [economy] [EU] [E15] [AAA] [EPA] [Valero] [Ecolab] [blending]

Uncertainty looms in EU economy

European chemicals output contracted by 2% in 2012 compared with 2011, according to European chemicals group Cefic. By lowering its forecast released in September, the chemicals trade body downgrade reflects recent data showing a stagnant European economy and a further decline in chemicals output since the first quarter of 2012. Cefic forecasts a slight expansion of 0.5% in 2013.

EU automotive and construction segments were a drag on chemicals demand in 2012, offering few encouraging signs. Sluggish demand remains for new cars as government-backed incentives to replace vehicles have now run their course. The fallout from overcapacity in the construction market has yet to wind down as the European building sector remains at historically low levels.

Once the final numbers are in, EU chemicals production for 2012 will likely remain 8% below its pre-recession level. On the product front, volatile oil and naphtha prices have caused further uncertainty in the petrochemicals sector as customers and producers both attempt to optimize inventory levels.

A recent survey by the American Automobile Association (AAA) finds a strong likelihood of consumer confusion and the potential for voided warranties and vehicle damage as a result of the US Environmental Protection Agency’s (EPA’s) recent approval of E15 gasoline. Ninety-five percent of consumers surveyed have not heard of E15, a newly approved gasoline blend that contains up to 15% ethanol. AAA is encouraging regulators and the industry to stop the sale of E15 until more than 5% of the cars on the road (the current number) are approved by automakers to use the fuel. Only about 12 million out of the more than 240 million light-duty vehicles on the road today are approved by manufacturers to use E15 gasoline, based on a survey conducted by AAA of auto manufacturers. AAA automotive engineering experts also have reviewed the available research and believe that sustained use of E15 in both newer and older vehicles could result in significant problems such as accelerated engine wear and failure, fuel-system damage and false “check engine” lights for any vehicle not approved by its manufacturer to use E15.

One employee at Valero’s Memphis, Tennessee, refinery died after a chemical exposure incident, according to news reports. The accident occurred December 3 when an equipment failure released a hazardous chemical inside the refinery, leading to chemical burns when a small glass window shattered in the alkylation unit. Valero said the incident did not involve an explosion or fire, despite initial reports from local media to the contrary. Operations at the 180,000-bpd refinery were not affected, according to the company.

Ecolab has amended its acquisition agreement with Permian Mud Service, the parent company of Champion Technologies, so that Champion’s downstream process and water solutions business will be spun-off to Permian shareholders prior to the Ecolab acquisition. As such, Ecolab will not be acquiring those specific operations. Sales in 2011 for the downstream business, which primarily serves refineries, were approximately $50 million. Accordingly, the value of the transaction will be reduced to $2.16 billion from $2.2 billion, subject to further adjustment as provided in the acquisition agreement.

The Vietnamese government recently announced a roadmap for the blending ratio of biofuel with traditional fuel. The policy mandates the use of E5 biofuel in seven Vietnamese localities beginning December 1, 2014. From December 1, 2015, the use of E5 will be compulsory for all road vehicles nationwide. E10 biofuel will be used in these localities from December 1, 2016, and E10 use will also become compulsory nationwide from December 1, 2017. Production and supply chain/distribution challenges have resulted in Vietnam’s ethanol production being more expensive than what could be produced overseas. Vietnamese consumers have also been reluctant to use ethanol because of perceptions about fuel quality and safety.

Economic prospects are looking brighter for the heating, ventilation and air conditioning (HVAC) industry in 2013. Potential growth exists in a resurgent housing market and in consumer interest and investment in “green” HVAC equipment, according to a new report from SBI Energy. The report projected the total shipment value of HVAC manufacturing products to reach $14.5 billion by the end of 2012, with that number growing to nearly $17 billion by 2017.

“Growth of the industry will begin to accelerate by 2015,” said Darren Bosik, an analyst with SBI, “when the impact of government-funded initiatives is felt in US construction and housing industries, most notably the movement to construct zero-energy buildings (ZEB).”

Critical to the growth of HVAC manufacturing is the resurgence of US household remodeling and the recovery of new construction and housing and related industries such as steel. Driving the total HVAC equipment manufacturing growth to 2017 will be heat transfer equipment [4.4% compound annual growth rate (CAGR)] and air source heat pumps (4.9% CAGR). The two categories are characterized by lower unit costs, and demand will increase with an expected boom in construction projects that require replacements of these products.

The market for fuel ethanol in the US remains unconcentrated, with 154 firms nationwide either producing ethanol or likely to be in production in the next 12 to 18 months, according to the US Federal Trade Commission’s (FTC’s) 2012 report on the state of US ethanol production. FTC staff calculated market concentration for ethanol production using different measures. The staff concluded that, as of September 2012, there were 10 fewer ethanol producers in the US than at the time of the FTC’s 2011 report. The largest ethanol producer’s share of capacity decreased slightly to 11.1% of domestic ethanol production capacity, which was below the 11.5% share in 2011.

Plains All American Pipeline has agreed to acquire four operating crude oil rail terminals, one terminal under development and various contractual arrangements from US Development Group for approximately $500 million. The assets to be acquired include three crude oil rail loading terminals located in the Eagle Ford, Bakken and Niobrara producing regions with an aggregate daily loading capacity of approximately 85,000 bpd; a rail unloading terminal at St. James, Louisiana, with a capacity of approximately 140,000 bpd; and a project to construct a crude oil unloading terminal near Bakersfield, California. HP

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Richard Estada

RE: Plains Bakken crude oil teminals, advise timeframe for Bakken terminals.

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