OUTLOOK '13: US ethane spot prices may rebound from historic lows

21 December 2012 16:09  [Source: ICIS news]

US ethane spot prices may rebound from historic lowsHOUSTON (ICIS)--US ethane spot prices should rebound in 2013 from all-time ICIS lows in the last few weeks of 2012.

Ethane spot prices hit a historic low of 22.5 cents/gal in mid-December, the lowest price since ICIS began tracking the commodity two years ago.

Spot ethane prices have fallen 71.0% since the beginning of the year, when they were around 78.00 cents/gal.

There were several reasons for the dramatic fall of ethane prices this year, said consultant Susan Starr.

Ethane production has continually increased throughout the year, as a result of massive shale formations rich in natural gas liquids (NGLs) such as the Marcellus shale in the northeast US and Bakken shale in North Dakota.

Additionally, the US has nearly reached its limit of cracker conversions, where the plants are retooled to run lighter feedstocks, such as ethane.

Starr said there are a few more cracker conversions and expansions that will take place over the next couple of years but not nearly enough to take care of all the extra production.

“Production just keeps increasing,” she said. “And it’s going to continue to keep increasing.”

Starr said there will not be any significant increase in demand until some of the announced cracker projects come on line around 2017.

A spate of cracker outages at the end of 2012 also lent support to low ethane prices. Shell, ExxonMobil and Flint Hills Resources all had unplanned outages and maintenance that took several large crackers off line for weeks.

Prices rebounded in late December, when those crackers came back on line.

Sources say 2012 was an unusually active year for turnarounds and unplanned outages.

“We had an abnormally heavy turnaround season during February through June,” said Dan Lippe, the president of Petral Consulting.

He said demand during that five-month period was about 35,000-80,000 bbl/day below the average of 1.015m bbl/day during the previous five-month period.

As a result, ethane inventory in the US Gulf increased by 12-13m bbl, Lippe added.

“We now have a substantial ethane inventory surplus; the recovery in demand began in July as expected but demand will have to increase further and remain at higher rates for about six to eight months before ethane inventory is once again at historic mid-range levels, about 17m bbl for Gulf Coast inventory and 20-21m bbl for US ethane inventory.”

The use of ethane as a feedstock has also put downward pressure on propane prices.

Propane spot prices fell by over 42.0% over the course of 2012.

It all started with the mild 2011-2012 winter.

Demand for propane, which is used to heat homes and businesses, was about 20m bbl less than the five-year average, Lippe said.

As a result, stockpiles surged.

“The inventory surplus reduced the need for purchases by propane wholesalers and large retailers during the second and third quarters,” Lippe said. “The inventory surplus was equal to about 50% of the typical seasonal inventory build.”

Like ethane spot prices, propane spot prices rebounded at the end of 2012.

However, they are still about 40% below prices seen at the beginning of 2012.

By: Bobbie Clark
+1 713 525 2653

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