FocusUS ethane prices at three-year low on inventory surplus

31 May 2012 17:33  [Source: ICIS news]

By Sheena Martin

HOUSTON (ICIS)--US Gulf ethane prices reached a low unseen for more than three years because of high inventory that the market is unable to absorb, according to industry observers.

“Inventory increased in every month during February through May - four months at 60,000 bbl/day equals 7.3m bbl,” said consultant Dan Lippe with Petral Consulting Company. “The inventory during February through April was enough to completely wipe out the bullish impact of turnarounds at two raw mix fractionators.”

Enterprise is performing maintenance at two fractionators, which separate ethane from the natural gas stream. Enterprise did not immediately reply to a request for information.

On Thursday, ethane out of Mont Belvieu in Texas traded at 32.25 cents/gal, dropping from an early trade of 37 cents/gal. The last time ethane traded lower was 32 cents/gal on 1 April 2009.

Lippe said he was surprised that prices had not moved higher, and he thinks other buyers of ethane for crackers are also surprised by the low prices.

Ethane demand as a cracker feedstock was 1.035m bbl/day in January, compared with ethane production of 1.1m, Lippe said. Accordingly, ethane was at a 65,000 bbl/day surplus.

Production of ethane from gas plants in March and April was 1.05m-1.06m bbl/day, while demand fell to about 970,000 bbl/day, leading to a surplus of about 85,000 bbl/day.

The surplus situation will encourage producers to leave more ethane in the natural gas stream – a practice known as rejection - because the cost to remove it is as much or more than the cost to remove it and profit from ethane sales, according to industry observers.

Midstream Energy Group president and industry analyst Anne Keller said, “Right now, Mont Belvieu ethane is about break even versus leaving it in the gas, so I would expect plants will slow recoveries at some point. Looks like there is simply not enough demand from the chems to bid up prices.”

Lippe said that in March and April, gas processors in west Texas had rejected some ethane as a result of lack of space in the pipelines.

“The only bright spot is the possibility that some gas processors in Oklahoma and Kansas and Wyoming and Colorado are now rejecting ethane,” said Lippe. “We won’t know that for sure for two to three months.”

Lippe said the large inventory accumulated the first half of the year will prevent a significant rise in ethane prices from any ethane rejection that occurs during the third and fourth quarters.

By: Sheena Martin
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