US ethane hits 13-month high on strong demand, rising natgas prices

12 January 2018 23:00 Source:ICIS News

HOUSTON (ICIS)--Strong natural gas prices and spot buying ahead of expected cracker start-ups in the region led US Gulf Coast ethane prices to surge to a 13-month high.

ICIS assessed January ethane on Friday at 28.00 cents/gal FOB (free on board) Mont Belvieu, up from 24.50 cents/gal the previous week and up sharply from 19.50 cents/gal a month ago.

This is the highest ethane assessment since 23 December 2016.

Natural gas futures have surged over the past week, strengthened by a blast of cold wintry weather across the US. February natural gas futures closed at $3.200/MMBtu on Friday, up from $2.795/MMBtu the previous week, marking the highest settlement since $3.213/MMBtu on 10 November 2017.

Market observers said the ethane prices have firmed alongside the spike in natural gas prices, as gas processors elected to keep as much ethane in the gas stream as possible to keep BTUs (British thermal units), or the heat content, up.

“There is an economic incentive to keep the ethane in the gas, so that’s why a lot of ethane was not recovered during that frigidly cold period,” said Peter Fasullo, consultant at Envantage. “Hard to quantify how much [ethane is put in the stream] but the market reaction was clear.”

Along with the cold winter snatching up supply, spot buying for ethane consumers has picked up since the start front of the year, market sources added, as a slew of crackers are expected to come online over the next two quarters.

Company Location Tonnes/year Start-up
Dow Chemical Freeport, Texas 1.5m Up late 2017
Chevron Phillips Cedar Bayou, Texas 1.5m Q1 2018
Indorama Lake Charles, Louisiana 370,000 Early 2018
ExxonMobil Baytown, Texas 1.5m Mid-2018

The surge in ethane prices did not come a surprise because values had been so low in December.

Some market participants said that ethane market had been ripe for a rebound.

“Traders realise we have more winter to go, [and] we have two cracker startups that could consume 180,000 bbl/day of additional ethane [by the second quarter],” Fasullo said.

Despite this most recent spike, ethane remains the favoured feed, a natural gas liquids (NGL) broker said.

This should keep demand for ethane strong in the near-to-longer term.

Focus article by Steven McGinn

By Steven McGinn