Ethylene Behaves Itself – Price of the Petrochemical Intermediate Back Inline With Ethane and Gas

How about some good news to start the year? Over the past few weeks, ethylene margins have blasted into the stratosphere. These are good times for steam crackers, those petrochemical plants that use mostly NGL feedstocks to produce ethylene and other building-block chemicals. As you might expect, this newfound prosperity has a lot to do with ethylene’s price. In December alone, the price of ethylene was up 50%; versus April it’s up a whopping 4X, coming in yesterday at 37.5 cents per pound (c/lb). There are a whole range of factors responsible, including petchem outages due to the hurricanes, new downstream derivative units coming online, robust exports from the Enterprise Morgan’s Point dock, and, oh yes, strong demand for downstream products — everything from food packaging to construction materials. Is the spike in ethylene prices going to last? And what does it mean for NGLs, which account for more than 95% of the feedstock supply for U.S. ethylene. We’ll explore those questions and more in this blog series we begin today.

That crazy little ethane molecule is at it again. Yesterday the price blasted to 67.875 c/gal, a level last seen on January 17, 2012. Petchem cracker margins are low. Production is up, but inventories are down. A big driver of the bedlam is the price of natural gas, trading in the $7-$9/MMBtu range for the past month. But as usual with ethane, there’s a lot more happening below the surface — including high domestic demand, growing export volumes, and significant developments in downstream petrochemical markets — all shaking things up. Looking ahead, uncertainty looms, with more export capacity, ever-changing ethane rejection economics, and uneven production growth. In today’s RBN blog, we’ll leap back into the ethane market to see what’s been going on, and where ethane is headed over the next few years.

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.