US Gulf n- butane drops on shale production and low gasoline demand

10 May 2012 18:51  [Source: ICIS news]

HOUSTON (ICIS)--Over production for shale and questionable summer driving fuel demands pushed US Gulf normal butane prices to its lowest since 26 November 2010, a consultant said on Thursday.

Prices began a swift downturn last week for all natural gas liquids (NGLs). On 8 May, normal butane in Mont Belvieu traded at $1.64/gal, compared with a low of $1.62/gal on 26 November 2010.

Normal butane prices were at $1.9325/gal on 27 April.

The US shale boom is among many factors that pushed normal butane and associated NGLs lower, said consulting group Midstream Energy Group president Anne Keller.

The wealth of production from shale has created a surplus of product with no home, especially as normal butane loses demand as a gasoline blendstock because of the switch from winter to summer gasoline specifications, Keller said.

Mont Belvieu spot normal butane is making a late switch from a heavy vapour pressure winter gasoline feedstock to its summer role as a feedstock for a high-octane gasoline blendstock, she said.

The blending process for summer gasoline is unique this year as blenders are waiting until the latest possible date to switch from the winter to the summer gasoline blends, she said. Accordingly, refiners do not have to pay for the more expensive gasoline blend as soon.

The blending for the winter batches has ended, causing a drop in normal butane prices.

Summer gasoline use at the terminals is federally mandated on 15 May.

Typically, demand for normal butane picks back up for summer gasoline. Normal butane can be turned into isobutane, and isobutane is a feedstock for high-octane summer gasoline blendstocks.

Keller said some normal butane is already being exported, however, and with gasoline consumption about 5 % lower than the seasonal average, there is not as much demand for isobutane, and therefore lower normal butane demand.

Isobutane prices continued to drop, as use for isobutane to produce high-octane alkylate for jet fuel has not come into full capacity yet. There is also an uplift in potential for isobutane supplies because of the shale boom in production.

Isobutane prices were $2.0250-2.0450/gal on 26 April, compared with a low of $1.7900/gal on 8 May.

By: Sheena Martin
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