US ethane spot prices plummet on cracker outages

Focus story by Bobbie Clark

HOUSTON (ICIS)–US ethane spot prices tumbled to a year-and-a-half low on Wednesday, as buying activity was stagnant due to ongoing cracker outages.

The ethane spot price at the Mont Belvieu hub in Texas fell to 22.25 cents/gal, the lowest price since the week ending 11 January 2013, when prices were in the range of 21.50-21.75 cents/gal.

Just last week, US Dow Chemical shut down at least one cracker at its Freeport site in Texas.

The company has two crackers at the site. Its No. 7 cracker has an ethylene capacity of 612,000 tonnes/year, and its No. 8 cracker has an ethylene capacity of 1.043m tonnes/year.

Earlier this month, ExxonMobil put its 1m-tonne/year Baton Rouge cracker in Louisiana into a three-week turnaround.

LyondellBasell and DuPont have also had plants down during the month. DuPont’s cracker has since restarted and is running at full capacity, while LyondellBasell’s cracker is also up but running at reduced rates.

As a result, ethane spot prices have declined steadily over the past few weeks. In fact, ethane has not topped 30.00 cents/gal since the week ending 18 April, according to ICIS Pricing.

Weak natural gas futures have also pulled down spot ethane prices.

On 16 July, natural gas futures closed at $4.12/MMBtu. They settled at $3.76/MMBtu on Wednesday morning.

Weather forecasts have traders worried about long-term natural gas demand, as supplies continue to build.

Analyst Dan Lippe said ethane demand will increase by 125,000 bbl/day, once these ethylene plants return to service.

“Prices will fall low enough to push more gas plants into rejection,” he said. “As a result, gas plant production will decline and inventory will decline. Prices will go up maybe 5-10 cents/gal for a few months and then we’ll repeat the cycle – if my assessment is accurate.”

Meanwhile, ethane production rose to 33.132m bbl in April, according to the latest statistics form the US Energy Information Administration (EIA).

That’s an all-time high.

Supplies for the same month were at 34.613m bbl, the highest level since August 2013.

The statistics for May will be released during the last week of July, according to the EIA website.

Currently, ethane has only one use in the US – as a feedstock for ethylene plants. Massive shale gas fields, chock-full of natural gas liquids (NGLs), including ethane, have given the US massive supplies.

Ethane is so plentiful that estimates of up to 300,000 bbl/day of it is rejected back into the natural gas stream and sold to heat and power homes, businesses and plants.

However, Lippe said new NGL pipelines and the absence of pipeline tariffs have reduced recovery costs for many gas processors.

“Based on my ethane recovery economics, ethane rejection should have reduced ethane production in March or April but ethane production in fact increased,” he said. “Also, some gas processors with new gas plants have signed take or pay agreements for fractionation. Take or pay agreements also reduce the price at which new gas plants will reject ethane.”

Another factor that may help boost prices is the prospect of ethane exports, which have become much more of a reality with the recent announcement of US midstream giant Enterprise Products Partners’ ethane export facility, to be located at the Houston Ship Channel.

“Ethane exports from the new terminal in the Houston Ship Channel will begin in third quarter 2016 and CP Chem is likely to begin accumulating ethane for start up of its new ethylene plant – in the third or fourth quarter 2016,” Lippe said. “Ethane prices will increase in second half 2016 – probably by 15-20 cents/gal.”

There are also all the announced ethane cracker projects, many of which will come online as soon as 2016.

This increase in exports and domestic demand will bolster ethane spot prices.

RBN Energy said that much of the current glut of ethane may be used by all the potential cracker capacity.

The analysis firm estimated new ethane demand at 105,500 bbl/day by the end of next year and another 495,000 bbl/day from 2017-2019.

But until then, ethane prices will be stuck in a price purgatory, fluctuating with natural gas futures, sources said.

A broker said Mother Nature is the only force strong enough to move ethane prices at this point.

Ethane hit pre-recession levels during the winter, as winter storms and infrastructure issues stranded supplies, sending prices to near-record levels.

But that rally was short-lived, and prices normalised by late March.