Material Insights · Understanding the Material World

Crude oil and Propylene

Most propylene is a by-product of cracking crude-derived naphtha and of refinery catalytic crackers, so oil sets its cost, but propane dehydrogenation is a growing route that loosens the link.

Crude oil (energy) and Propylene (chemical): 4 relationships.

How they are linked

1. Naphtha cracking and refinery crackers

Physical flow · Strong · Crude oil to propylene, through naphtha and gas oil

Most propylene comes as a by-product of steam cracking naphtha and of refinery catalytic crackers (FCC) that process heavy crude fractions, both of which start from crude oil.

  • about 72% forecast share of propylene from crackers and refineries rather than on-purpose units, 2028
  • about 70% share of world propylene used for polypropylene

Steam crackers and refinery FCC units are the two largest sources, so propylene supply depends on refinery and cracker runs set mainly by fuel and ethylene demand. S&P Global expects on-purpose units to supply 28% by 2028, leaving about 72% as by-product.

Sources: Chemical Market Analytics by OPIS; Chemical Week

2. Set by ethylene economics

Joint production · Medium · Propylene output follows cracker feed choice

In a cracker, propylene comes out alongside ethylene in a ratio set by the feed, so a shift from naphtha to ethane cuts propylene supply.

  • 40 to 60% propylene output as a share of ethylene, for non-ethane feeds

Naphtha crackers make a lot of propylene, while ethane crackers make very little. A shift towards ethane cracking therefore cuts by-product propylene and raises the need for on-purpose routes such as PDH.

Sources: Chemical Market Analytics by OPIS

3. Propane dehydrogenation (PDH)

Substitution · Rising · Propane-based PDH competes with oil-based routes

PDH makes propylene on purpose from propane, mostly from gas fields and US exports, so it competes with crude-based supply and weakens propylene's link to oil.

  • 11% to 20% forecast PDH share of supply, 2018 to 2028
  • 8.4 Mt/y capacity of 11 PDH units due in 2023, needing up to 10 Mt/y of propane

S&P Global expects on-purpose routes to rise from 21% to 28% of supply between 2018 and 2028, led by PDH. It also expected propylene capacity to grow 2.3 times faster than demand over 2020 to 2024, which kept margins thin for all routes.

Sources: Chemical Week

4. Price link: feedstock cost

Cost and price · Strong · Both ways, crude leads by about a month

Most propylene comes from crude-based crackers and refinery units, so the petrochemical price index follows Brent.

  • 0.52 monthly change correlation
  • 0.89 12-month change correlation
  • 0.71 fitted elasticity

The proxy covers the wider petrochemical basket, not propylene alone. As PDH gains share, propylene's own price will depend more on propane, which can diverge from crude.

Sources: Material Insights (World Bank, FRED, IMF data)

For investors

Key learnings

  1. Most propylene is a by-product of naphtha cracking and refinery FCC units, so its supply follows fuel and ethylene decisions, not propylene prices.
  2. PDH was forecast in 2023 to rise from 11% to 20% of supply between 2018 and 2028, which ties propylene more to propane than to crude.
  3. Capacity forecast to grow 2.3 times faster than demand over 2020 to 2024 has kept margins thin across routes.

What to track

  • Propylene to propane spread in China: The margin for PDH plants; a narrow spread signals PDH run cuts (Weekly · trade press, S&P Global Platts)
  • Brent and naphtha prices: Set the cost of cracker and FCC propylene (Daily · ICE, price reporting agencies)
  • Refinery FCC and cracker run rates: Higher runs add by-product propylene (Monthly · company results)

For policymakers

Key learnings

  1. Refinery-based propylene lets oil refiners add value inside the plant, a route Indian refiners have pursued.
  2. A shift to imported propane for PDH swaps crude dependence for propane import dependence.
  3. Global overcapacity means new propylene projects face thin margins, which matters for state refiners' investment plans.

What to track

  • Polypropylene import volumes: Rising imports signal domestic propylene supply is uncompetitive (Monthly · Ministry of Commerce trade data)
  • LPG and propane import prices: Matter for any PDH-based propylene (Monthly · PPAC)

India

Indian refiners have pursued refinery-integrated propylene outlets, such as IOCL's polypropylene unit at Paradip and BPCL's propylene derivatives project at Kochi, both announced by 2017.

Sources

  1. World Analysis: Propylene, Chemical Market Analytics by OPIS
  2. WPC 2023: Propylene slump until 2025, Chemical Week (2023)
  3. Price correlation, Material Insights, Material Insights (World Bank, FRED, IMF data)
  4. Petrochem majors step on the gas pedal, Business Standard (2017)