Carbon Rich Value High – NGL Trading and Pricing Part III: Ethane

On Friday purity ethane in Mont Belvieu came in at 36.4 cnts/gal on OPIS, up 1.5 cnts while Conway ethane in E/P mix was up 1.25 cnts to 15.75 cnts/gal.  Given that at this time last month Conway was trading at a dismal 2.25 ctns/gal while Mont Belvieu was wallowing under 30 cnts/gal, these numbers sound pretty good (See Chart #1 below).  But let’s not lose sight of the fact that these prices are still dirt cheap.  This time last year ethane prices were 2.5X to 3X higher.  Is this simply a replay of the natural gas-oversupply-price-collapse story as some are saying?  Or is it more complicated than that?  As you’ve probably guessed, it is definitely more complicated than that.  Because this the simplest of the NGL molecules turns out to be surprisingly complex in the marketplace.    Today we’ll break down that complexity by looking at the details of the ethane markets.

Y-Grade, the Heavies and Propane

But before we get deep into ethane, let’s first recap what we’ve already learned in this blog series about NGL markets.   In Part I we started with Y-grade - that mixed NGL stream that is produced at natural gas processing plants.  You can’t do anything with it besides store it or fractionate it into purity products – ethane, propane, normal butane, isobutane and natural gasoline, a.k.a. their hydrocarbon molecule shorthand, C2, C3, NC4, IC4 and C5. 

Prices for the three ‘heavy’ NGLs (also abbreviated as normal, iso and natural) tend to move with crude oil and motor gasoline prices.  That is because one of the largest end uses for all three products is the motor gasoline market – either directly or indirectly.   In Part II we showed that propane is a different animal.  It is primarily used in home heating (and of course BBQ grills).  For that reason, weather is a primary determinant of propane prices.  In fact, propane prices and propane inventories tend to behave very similar to natural gas prices and inventories, which are also primarily influenced by the weather.

But propane has another large market that behaves quite differently than natural gas.  And that is the petrochemical market which soaks up 41% of all propane.   Depending on market conditions and particularly in the summer, it is sometimes the petchems that drive the propane price train, not weather.  And that’s not all that keeps propane traders on their toes.  Lately a lot of surplus propane has been exported.  And a lot more exports are on the way.  That puts U.S. propane prices squarely in the world market for liquid hydrocarbons and petrochemical feedstocks… generally a bullish thing since world prices tend to be closer to crude values and thus priced high.