(Bloomberg) — Investors are misjudging how much Strait of Hormuz closures could impact global flows of petrochemicals, said Enterprise Products Partners LP Chief Executive Officer Jim Teague, adding to a chorus of industry voices warning about lingering disruptions from the Iran war.
“We believe the financial markets are underestimating the potential global supply implications from a prolonged closure of the Strait of Hormuz,” Teague said in a Tuesday earnings call to discuss the pipeline operator’s quarterly results. The CEO said 12 million to 15 million barrels a day of crude oil, refined products, propane and petrochemical supplies could be constrained, depending on the scenario.
Teague is the latest industry executive to suggest that upheavals from the Middle East conflict could drag on, joining CEOs such as Dow Inc. CEO Jim Fitterling in warning investors during earnings calls. The comments underscore a growing consensus among producers and suppliers that tightness in feedstocks and petrochemical markets may endure.
The Iran war has caused US petrochemical markets to skyrocket, with lost Middle East supply making American ethylene and propylene — key ingredients to make plastics used in packaging, construction and consumer goods — more attractive to buyers around the world, while propane and other natural gas liquids feed global chemical production. 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 — a natural gas liquid — to ethylene has more than tripled since the regional conflict began, reaching roughly 23 cents a pound, according to Teague. The so-called cracking spread to turn ethylene to polyethylene has more than doubled to 45 cents a pound, he said.
Shares of Enterprise Products Partners rose as much as 1.8% in New York, after the pipeline company posted first-quarter revenue that topped the average estimate of analysts surveyed by Bloomberg. Gross operating margin for the company’s natural gas liquids pipelines and services business — which includes some of the largest US LPG and ethane export facilities — rose almost 6% from the same period last year.
Enterprise 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.
“A healthy petrochemical business is good for Enterprise,” said Teague, who noted that the company will ship out around 3 million barrels of ethylene in April.
The company says interest in ethane and propane remains strong globally, including continued appetite from international producers to convert cracking units to run on cheaper US feedstock.
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