Correction: In the ICIS story headlined “N America NGLs prices at rock bottom, wait for off take” dated 12 July 2013, please read in the seventh paragraph … RBN Energy estimates that 200,000-250,000 bbl/day of ethane … instead of … 200-250m bbl/day of ethane … A corrected story follows.
By Nigel Davis
LONDON (ICIS)--As shale wells in North America continue to pump gas so the price of NGLs (natural gas liquids) moves lower - until there is serious off take that is.
Ethane and propane prices in the US have hit rock bottom in recent months, with the traditional premium of ethane over the Henry Hub natural gas price lost (almost) entirely and the propane to WTI price ratio significantly lowered. The ethane price in the US fell sharply a couple of months ago because of cracker outages.
The only real market for ethane is steam cracking otherwise it is not extracted but ‘rejected’ into natural gas. Traditionally, the premium of ethane over natural gas is $2/m Btu (million British thermal units), roughly equivalent to the cost of fractionation.
“Ethane crashed and burned at the start of last year.” Information provider and consultants RBN Energy said on Wednesday, a blog post asking whether NGL prices can continue to drop.
The fall in ethane prices can be traced back to early 2012 when ethane production increased markedly.
By January this year, the ratio between ethane and the Henry Hub natural gas price was below 1.0. It has moved around this level since.
“The price of ethane is bouncing along its floor - ethane’s natural gas Btu equivalent,” the blog’s author said. RBN Energy estimates that 200,000-250,000 bbl/day of ethane is being rejected.
For the midstream, this period of painfully low ethane prices is likely to persist until there is more off take.
Prices might firm next year commentators believe when pipelines begin to alleviate stranded supplies in the Rockies and the northeast of the US. Among these are the 1,230 mile long Appalachia to Texas (ATEX) and the 420 mile long Front Range NGL pipelines. Otherwise gas suppliers face what has been called “price purgatory” until chemical producers start up their planned new crackers.
Ethane prices though are not set in a vacuum but will respond when propane and other NGLs prices begin to move higher.
Propane is the one to watch with interest mounting for expanded propane export capabilities in the US Gulf. Target markets would be global although increased China demand is critical.
Propane is a cracker feedstock, which chemical producers take advantage of in the summer when prices are lower given the lack of winter fuel demand. But propane also can be exported relatively easily (unlike ethane) with prices responding to international market demand.
According to RBN Energy, price of propane in the US has been pushed down to as low as 35% of WTI crude oil as benchmarked at Cushing in Oklahoma. The ratio of propane priced at Mont Belvieu in Texas to WTI typically was 60%. The relative propane price could be even lower given the narrowing in recent weeks of the WTI/Brent benchmark differential.
As many as eight propane dehydrogenation (PDH) projects have been announced in America but it is unlikely that all will be built.
The same can be said about the staggering number of projects in China where eight PDH plants are being built and a further nine are planned.
Potentially, China’s imports of propane could grow to 12m tonnes/year, six times its current level because of these projects.
The Middle East is unlikely to be able to meet this increased demand. The US and Canada could possibly although that would require the development of more global as opposed to the current regionally-linked propane markets. Large Chinese LPG (liquefied petroleum gas) importers, however, have, according to ICIS, already struck contracts for from the US to meet part of the propane volumes needed for the PDH plants.
Propane off take and export infrastructure will have a great bearing on NGLs prices and availability and in turn on the viability, and not simply of the planned PDH plants in America.
NGLs economics will depend on how propane prices change in the coming years.
Price relationships between natural gas, NGLs and crude are likely to move back into traditional territory but the timing of that move is far from certain.
Peter Taffe and Bobbie Clark contributed to this article