As the World Turns - The Iso/Normal Butane Drama Continues

The normal butane market was anything but normal the past few weeks. All’s back to square one now, but in the last week of 2016 the price for normal butane spiked to more than $1.20/gal from only $0.73/gal in November. The differential between isobutane and normal butane plummeted into record-shattering negative territory. And the margin from cracking normal butane to make ethylene and other products fell off the chart—literally, our PowerPoints had to be reworked to show how much the margin had fallen. What the heck went on there? Today, we discuss the recent upheaval, what may have caused it, and why things snapped back to normal so quickly.

For a few years now, the Shale Revolution has been opening up development opportunities hardly anyone would have thought possible in the Pre-Shale Era. For example, new crude oil, natural gas and NGL pipelines from the Permian to the Gulf Coast, lots of new fractionators and steam crackers, as well as export terminals for crude, LNG, LPG, ethane and, most recently, ethylene. And here’s another. Thanks to the combination of NGL production growth and new ethylene supply — plus increasing demand for alkylate, an octane-boosting gasoline blendstock — the developer of a novel ethylene-to-alkylate project along the Houston Ship Channel has reached a Final Investment Decision (FID). Today, we discuss how the FID is driven by both supply-side and demand-side trends in the NGL and fuels markets.

What a deal! Take as much butane as you want — all for the low, low price of less than 10 cents/gallon (c/gal). That was the situation in Edmonton, AB, last November and the price stayed dirt cheap until a few days ago. Given a decline in demand for butane in crude blending, along with growing NGL production, the NGL processing and storage hub in Western Canada was awash in butane as winter approached. It remains flush with product today — and the price for Alberta butane is still low. How did this happen, and how will it play out over the next few months? Today, we examine the factors that led the Edmonton NGL market to see a price fall to near zero c/gal for the second time this decade.