US ethane prices to be driven down by oversupply - analyst

20 June 2012 10:44  [Source: ICIS news]

LONDON (ICIS)--An oversupply of ethane in the US, due to shale gas operations, will drive down prices and increase profitability for cracker owners, global analyst Bernstein Research said on Wednesday.

Bernstein said that during late 2010 and 2011, exploration and production (E&P) management teams looked at their success in gas supply, and began a process of redeploying capital.

“Amid the disparity in pricing, with natural gas anaemic and crude strengthening to a record differential, the ‘shift to liquids’ became a major theme in the North American E&P space,” the analyst said.

“One of the biggest potential misconceptions, in our view, is that recent reductions in natural-gas directed drilling expenditures, due to low gas price, could result in lower NGL production,” it added.

Bernstein said it believed the opposite to be true, adding that in 2012 much of the industry’s capital has shifted to NGL operations, which is likely to increase production.

The analyst said that ethane and propane prices have fallen substantially in the past year and will likely remain low since the chemical industry is unable to consume the supply.

Bernstein added that this has meant that capacity to consume ethane and propane in crackers is not keeping up with production.

“Looking forward, announced capacity additions and debottlenecking will likely not keep up with ethane production growth of 6-7% CAGRs [compound annual growth rate],” it said.

“Ethane supplies appear to have increased to the point where the US chemicals industry has to use even more ethane than what their crackers were designed for, to try to consume the surplus. As a result, ethane and propane prices are depressed,” Bernstein added.

It said consumers of ethane and propane should continue to benefit from the low-cost of ethane and propane, as it will improve the profitability of ethane cracker owners such as Dow Chemical, LyondellBasell, and Westlake.

By: Leigh Stringer
+44 208 652 3214

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