FocusUS shale gas pushes ethane to 3-year low, propane near 2-year low

08 May 2012 19:01  [Source: ICIS news]

An ethane crackerHOUSTON (ICIS)--The US shale boom is among the many factors that pushed ethane to a three-year low and propane to a near two-year low - even as a heavy cracker turnaround season comes to an end.

Ethane prices have dropped 26% since 27 April, and prices are the lowest since the start of May 2009. For propane, prices are 16% down from the end of April and the lowest since mid-July 2010.

On 4 May, ethane traded at a low of 38 cents/gal and propane moved at a low of 98.50 cents/gal in the spot market.

Anne Keller, the president of consultant agency Midstream Energy Group, said the shale boom is largely responsible for the strong in-flow of natural gas liquids (NGLs), which includes ethane, propane, butanes and natural gasoline.

This has created a surplus of product with no home, despite increased demand as US Gulf ethane crackers restart from turnarounds and a fractionator at Mont Belvieu shuts down for maintenance. Fractionators separate the NGLs to create market-ready ethane and propane.

Ethane and propane prices are closely tied in competition as a light feedstock for ethylene, said Dan Lippe , the president of Petral Consulting Company.

“Everything competes with everything in the Gulf Coast ethylene feedstock market, but ethane and propane especially are tightly linked by ethylene plant feedstock demand capabilities and incremental economics,” said Lippe.

Seasonal changes also contributed to the price drop for propane.

Keller said in the spring, propane demand is down and export capacity is full. She said no one wants to carry excess inventory that is building on balance sheets, leading to low sales prices.

“The only way out for NGLs is over the dock, which is already booked into next year,” said Keller.

The abnormally warm winter weather caused high inventories of propane and downward pressure on NGLs, Agosta and Keller agreed.

Prices for propane at the NGL hubs in the mid-continent and Edmonton, Canada, are trading much lower than the Gulf coast, incentivising traders to move propane via rail car to the Mont Belvieu Gulf Coast market, further building inventories, said Lippe.

Turnarounds at ethane crackers also reduced demand for ethane and propane.

Winter and spring turnarounds have included BASF, INEOS, DuPont, Shell, ExxonMobil, CP Chem, Shell and LyondellBassell.

Devon Energy CFO Jeffrey Agosta said about 10% of US petrochemical demand for NGLs was lost as a result of cracker turnarounds. That amounted to about 120,000 bbl/day of ethane and propane, he said during Devon's first-quarter earnings call.

Agosta said, “NGL realisation should recover” as many petrochemical plants will complete turnarounds and conversions of existing plants to lighter feedstocks, augmenting incremental demand to 60,000 bbl/day.

DuPont, ExxonMobil and LyondellBasell recently completed cracker turnarounds.

An influx of crude oil to the Gulf Coast through the reversal of the Seaway Pipeline is already impacting propane and ethane by pressuring prices lower ahead of the incoming crude supplies, Lippe said.

The initial flow from the Cushing oil hub to the Gulf Coast through the Seaway Pipeline will be 150,000 bbl/day. The flow of less expensive Canadian and West Texas Intermediate oil to the Gulf Coast will cause prices of Louisiana Light Sweet and Louisiana Heavy Sweet to drop, said Lippe.

Accordingly, crude processing of the cheaper crude grades will lead to cheaper off-gas, or liquefied petroleum gas (LPG), he added.

Refinery LPG adds to the propane stockpiles from NGLs as competition against ethane for a feedstock position in cracking, Lippe said.

“There is a very strong economic linkage between ethane and propane - the slide in propane prices for the above discussed reasons spilled into the ethane space and dragged ethane prices low,” said Lippe. “Ethane has to remain competitive with propane to maintain its high consumption rates.”

April US ethylene margins hit record highs, climbing each week. Ethylene margins in April climbed 10% to 56.13 cents/lb the week ended 27 April.

The first week of May reported a change as ethylene margins fell by 8% after a drop in ethylene spot prices outweighed a reduction in feedstock ethane costs, the ICIS margin report showed.

By: Sheena Martin
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