Days of Wild - Butane Prices Are Up, and a Big Draw on Butane Stocks May Be in the Offing

U.S. propane production has been on the rise for most of 2019, but propane consumption by steam crackers has been reined in by poor economics, and propane exports have been constrained by export-capacity shortfalls. That’s led to a big buildup in propane inventories, which stand at near-record levels as the market prepares for a winter heating season that is forecasted to be milder than normal. So we’re in for only a modest draw on propane stocks between now and spring, right? Not necessarily. There’s change in the air regarding propane supply, cracker demand and export capacity and, as we learned in the balmy winter of 2016-17, the U.S. propane market isn’t nearly as dependent on the weather as it used to be. Today, we assess recent market developments and explain why a big decline in propane stocks is a real possibility.

Until just a few years ago, the rise and fall of U.S. propane inventories each year was driven in large part by winter weather: the colder the temperatures in the major propane-consuming areas, the bigger the draw on stocks. Things have gotten much more complicated lately, though, thanks to a combination of rapid NGL production growth, a generally booming propane export market, and the vagaries of petchem margins. Now, to get a handle on propane stocks, you not only need to be able to forecast the weather, you also need to monitor international propane arbs and steam cracker economics — oh, and crude prices too, because they have a significant effect on NGL output and propane supply. Today, we discuss the many factors that impact propane inventories and prices in this sometimes chaotic market.

The ethane market isn’t for the faint at heart — it’s got lots of ups and downs, and it’s impacted by an unusually wide range of variables. A year ago this month, a combination of fractionation constraints in Mont Belvieu and rising demand from new ethane-only steam crackers sent ethane prices north of 60 cents/gallon. For most of the time since then, though, ethane prices were in something close to freefall, bottoming out at only 10 cents in late July before rebounding in recent weeks to 20 cents or so. During the big, months-long price decline, ethane traders and cracker operators did what anyone does when they can buy something they’ll need in the future for next to nothing — they stocked up. Today, we examine recent trends in ethane supply, demand, prices and storage levels, and take a look ahead.