The recent drop in oil prices hasn’t begun to pressure North American chemical producers to shift their feedstocks from natural gas liquids (NGL) products, the head of Canada’s NOVA Chemicals said Thursday.

Executives answered questions from financial analysts during a conference call to discuss the chemical manufacturer’s second quarter earnings. The Calgary-based company is conducting feasibility studies to determine whether to expand or build new ethylene crackers to take advantage of plentiful NGL production in North American shale plays. However, the recent sharp decline in oil prices led a few analysts to question whether NOVA had seen “any North American pressure on ethylene prices” or “any feedstock shifting.” NOVA designs and manufactures plastic resins, chemicals and end-products.

“I think it’s never comforting to have the level of volatility that’s out in the marketplace at the moment,” said NOVA CEO Randy G. Woelfel. “But if you step back, above some of the ’emotionality’ that’s out there in the capital markets at the moment, the fundamentals of our business still feel pretty sound.”

NOVA this year has secured some major transactions to ensure it has a long-term supply of ethane for its chemical facilities. Earlier this year Williams said it would invest C$311 million to expand two of its Alberta facilities to support a long-term agreement with NOVA to produce up to 17,000 b/d of ethane and ethylene (see Daily GPI, March 29).

In early May NOVA signed a memorandum of understanding (MOU) with a subsidiary of Range Resources Corp. for a long-term supply of ethane from the Marcellus Shale for its Corunna, ON, cracker. That announcement came just days after Dow Chemical Co., the largest consumer of propylene in North America, and Range signed an MOU for Range to deliver ethane supplied from the Marcellus Shale to Dow’s existing chemical operations in Louisiana (see Shale Daily, April 25).

And a few weeks ago Statoil Marketing and Trading Inc. (SMT) agreed to supply NOVA with a long-term supply of ethane from the Marcellus Shale under another MOU (see Shale Daily, Aug. 2).

Through July, Woelfel said, “we have seen some pretty decent growth in North America. The August pattern is continuing to track that sort of growth expectation. We continue to feel good about North American competitiveness, despite the downward movement in oil pricing. We’re still seeing oil to gas ratios that are at 20-plus and I feel the fundamentals are still sound and solid.”

From NOVA’s “perspective,” said the CEO, “we’ve done a lot of things in the last couple of years…since late 2008, beginning in 2009 in the crisis situation to fundamentally change NOVA’s ability to weather any sort of repeat situation. Just as one example, if you look at our exposure to crude oil in the supply chain today, it’s a fraction of what it was a couple of years ago, thanks to shifting the feedstock profile…We continue to believe that we’ll move through this [period of stock market and oil price volatility] as an industry in a way that fundamentally feels good.”

Williams CEO Alan Armstrong also was asked Tuesday during a conference call about whether weaker oil prices had begun to turn petrochemical companies “away from ethane feedstocks,” and whether that would affect any of Williams’ midstream plans (see Daily GPI, Aug. 10). “We’ve got a long ways to go before getting into that territory,” Armstrong responded. “We’re a long ways from when ethane was not a favored feedstock.”

At the end of June NOVA announced that it would expand its proprietary polyethylene technology to serve North American markets under the “NOVA 2020” plan (see Daily GPI, June 30). The plan led to the launch of feasibility and engineering (FE) work to construct two “world-scale” polyethylene facilities in Alberta and Ontario. The FE studies are to be completed by mid-2012; expansions also are being discussed at other Canadian facilities.

Asked if he thought ethylene prices in August were likely to increase, Woelfel said, “Well, I’m never going to be in a position trying to predict anything in the marketplace…what it will do. I can suggest, and I continue to see, solid demand across the derivative chain. We are headed into a period of planned shutdowns,” not only at NOVA but “we are aware of other industry shutdowns as well. Supply demand to us feels pretty snug; we’ll see where that takes us in the marketplace.”

The “emerging feedstock options” from the shale plays “have really opened up new and exciting opportunities for NOVA Chemicals,” he said. The “ethane surplus is…enough to supply a world-class cracker unit” in Alberta and in Ontario…We’ve seen stronger ethane supply this year than anticipated…

“We’ve been suffering from a weather standpoint, but the silver lining is that with the cold winter and a brutally hot summer, we’ve seen improved ethane supplies. There’s strong demand for natural gas.”

In the second quarter NOVA generated a profit of C$225 million, up from C$46 million in the second quarter of 2010. The Olefins/Polyolefins business unit generated C$367 million of operating profit in the latest quarter, compared with C$253 million a year earlier. The improvement, said the company, “was due to selling prices that increased more than feedstock costs.”

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