FocusUS ethane spot prices dip to two-month low on lack of demand

16 May 2013 21:11  [Source: ICIS news]

HOUSTON (ICIS)--US ethane spot prices dropped on Thursday to their lowest level in two months as several unplanned cracker outages have stymied ethane demand.

Ethane is the primary feedstock for ethylene plants. Ethane that is not used to produce ethylene is left in the natural gas stream and sold to power and to heat homes and businesses. The phenomenon is called ethane rejection.

Ethane spot prices at the Mont Belvieu hub in Texas were assessed at 27.25 cents/gal, the lowest price since the week ending 8 March, when prices hit 26.88 cents/gal.

The high for the year came during the week ending 29 March, when prices were 31.50 cents/gal.

Since then, prices have been steady, hovering around 28-29 cents/gal.

Sources said supply and demand fundamentals were steady throughout April.

Only recently have spot prices begun to drop.

It all started when Chevron Phillips Chemical (CP Chem) reported a loss of power and steam at its Sweeny site in Texas on 11 May. The company also had a power outage at the site.

Market sources said at least one Sweeny cracker remained off line. A spokesperson for CP Chem declined to comment, citing company policy.

The Sweeny site has three crackers with a combined ethylene capacity of 1.878m tonnes/year.

Flint Hills Resources also reported a cracker shutdown this week.

The company said in a regulatory filing that the loss of power shut down the cracked gas compressor and the propylene refrigeration compressor and also caused an upset in the light olefins unit.

The filing said power was restored later on 11 May. However, market sources said the light olefins unit was still down.

The cracker has 621,000 tonnes/year of ethylene capacity, according to ICIS plants and projects.

ExxonMobil shut down its Baytown cracker in Texas on Thursday because of a valve failure.

The company said it expects minimal impact to production and that it will be able to meet its contractual agreements.

The company has two crackers at the site and a total ethylene capacity of 2.2m tonnes/year, according to ICIS plants and projects.

A source said this dearth of demand along with a recent run-up in supply will continue to be bearish on prices.

This could be status quo for the next several years.

US investment firm Morgan Stanley recently said ethane will be oversupplied through 2018 and possibly longer.

Natural gas production from shale gas continues to yield massive amounts of ethane and other natural gas liquids (NGL).

Analysts expect ethane demand will finally start to catch up to supply once a few of these announced cracker projects come on line around 2016.

However, there is a lot of ethane supply stranded in the midcontinent and northeast US waiting for pipelines to be built.

The oversupply situation will likely peak in 2014-2015, after Enterprise Products’ ATEX pipeline is on line, transporting NGLs from the Marcellus shale in the northeast US to the Mont Belvieu hub in Texas.

Most of the ethane in the northeast US is in rejection because of the lack of infrastructure.

By: Bobbie Clark
+1 713 525 2653

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