Petchem Ethane Margins Soar 50%, Highest in 2.5 Years!

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.

In the Energy Information Administration’s (EIA) latest ethane production stats — for the month of May — gas plant production of ethane exceeded 1.4 MMb/d for the first time. In the same month, ethane exports also hit a record at 191 Mb/d, and ethane demand for petrochemical production — you guessed it — hit still another all-time high, topping 1.2 MMb/d. All this is just the beginning. These numbers and the throughput of any midstream infrastructure transporting or fractionating ethane will continue to increase over the next two years as new, ethane-only crackers come online, ethane rejection dwindles and overseas exports of ethane ramp up. By 2020, U.S. ethane demand is expected to reach 2 MMb/d — up by two-thirds from where it stands now. Today we continue our series on rising ethane demand, how the new demand will be met and what it all means for ethane prices.

We’ve done several blogs over the past months about the impact of the back-to-back crop drying and Polar Vortex anomalies on natural gas liquids (NGL) prices in general and propane prices in particular.  Today we are going to take a walk further downstream and look at how increasing propane exports, the weather related anomalies and subsequent price spikes shifted the petrochemical feedstock slate.    From mid-year 2013 to early 2014, huge volumes of propane were backed out of the petrochemical sector, replaced for the most part by ethane.  These swings have important implications for the future consumption of NGL feedstocks by petchems.  In today’s blog, we assess petrochemical feedstock switching in the 2013-14 timeframe, and beyond.