Ethylene is the starting point for so many chemicals that have such an impact on our daily lives from polyethylene (PE) used in packaging, pipes through to ethylene glycol (EG) used in polyester and antifreeze.
Europe’s ethylene landscape has been more fluid and dynamic over the past two years than ever before. The advent of low oil prices in Q4 2014 led to record cracker margins, strong demand, and increased operating rates, which in turn was considered a factor in the unprecedented number of production problems in 2015.
Prices usually track crude oil and naphtha market developments very closely but the supply and demand situation can play a large part in determining contract and spot prices because of the challenges inherent in producing, transporting and consuming a gas.
European contract prices hit a bottom of €810/tonne in March 2016 but have been on a steady uptrend for the most pary since then, gaining 16% largely on the back of a string of planned – and sometimes unplanned – cracker production issues. European spot price developments over the past year have been tumultuous, falling about 21% in the first quarter, rising again by almost 30%, and then settling back as supply has eased.
Ethylene Market Overview
Updated to Q3 2016
During the third quarter, the cracker turnaround schedule in Asia will keep regional supply restricted but this could be counterbalanced by the restart of Shell’s cracker in Singapore – currently it is scheduled to restart in July. The slowing down of a number of derivative units in China ahead of the G20 summit in the second half of August in will be offset by similiar reductions at crackers but demand is likely to be strong either side of the slowdown to compensate, and firm prices will continue to attract Middle East volumes.
Meanwhile in the US, supply is expected to ease with the heavy spring turnaround season drawing to a close, but demand is also likely to remain strong as derivatives replenish inventories.
There is limited maintenance due in Europe but balances are already tighter than expected moving into the quarter following recent hiccups which impacted on the turnaround preparations, nevertheless, the supply/demand balance should improve. There are concerns about the performance of polyethylene (PE) going forward but there has been no impact so far on cracker operations – producers remain upbeat over cracker margins.
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Updated to Q2 2016
European natural gas prices in the second quarter of 2016 are expected to remain broadly weak, although losses are not anticipated to be as great as in the first three months of the year. The winter season has ended with storage tanks more full than usual, indicating demand to replenish these reserves during Q2 and Q3 2016 will be less than in previous years. This should weigh on prices. The exception could be Britain, where gas-fired power generation has now become significantly more financially worthwhile than coal-fired electricity production.
The supply of LNG into northwest Europe is expected to be greater than during the summer of 2015, as Qatar is able to deliver more, and new supply sources – such as the US – start to come on line. This is likely to add yet more pressure to forward gas contracts at the hubs. Traditional European gas producers – namely Norway and Russia – are unlikely to turn down the taps as this extra gas arrives, fuelling the bearishness.
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Natural gas is commonly produced alongside oil or other hydrocarbons and can also be found deep underground within rock formations. An increasing amount of gas production stems from non-conventional sources, such as from coal-bed seams or from within shale formations. Natural gas is predominantly formed of methane.
Uses include acting as a raw material for power generation, a source of heating and a chemical feedstock for organic chemicals or plastics.
Natural gas is predominantly odourless but varying odorant may be added depending on the specific country to alert users of a leak. Gas normally dissipates in the event of a leak but can cause an explosion as it becomes flammable when mixed with air.
Natural gas is transported by pipelines which can run along the seabed or underground, potentially transporting the energy source thousands of miles. The fuel moves at a speed of around 25km/hour through the pipe.
It is typically stored in depleted gas reservoirs or salt caverns. A certain volume of gas is kept within pipeline networks in order to maintain pressure. This is called linepack.
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