RBN Energy

In just over a month, purity ethane prices in Mont Belvieu are off 41%, falling from 50 cnts/gal on 4/30 to 29 cnts/gal on Friday, 6/8.  During the same period, non-TET propane was down 35% from 116 cnts/gal to 75 cnts/gal (see left graph, below).  Last week when we looked at petrochemical feedstock economics, propane was the preferred feedstock for the first time in years.  But a couple of days later that relationship flipped back to ethane.   At first glance, that seems strange.  Both ethane and propane increased during the first half of the week, then came back off (see right graph).  But feedstock economics went from favoring propane by more than a nickel per pound of ethylene to favoring ethane by just over a penny on Friday.  To understand how and why this shift happened we’ll need to break out the spreadsheets again.

EIA NGL natural gas plant production statistics were posted on Wednesday and showed something we have not seen for a few months – a decline in volume.  It was not a huge decline.  And with the price of Conway ethane in the dog house over the past three months, it was not unexpected.  But given the importance of NGLs to both the natural gas and petrochemicals industries these days, it definitely warrants a careful examination of the numbers.  We can expect to see this trend to accelerate over the next few months.

Yesterday we started our series on the economics of petrochemical feedstocks.  With NGLs driving the natural gas market, it is critically important to understand the factors that influence NGL prices.  The #1 factor is the petrochemical market that consumes more than half of all NGL production and 100% of the ethane.  In Let’s Get Cracking we did a brief overview of olefin crackers including how they work, what they make and where they are located.  We also introduced the fundamental fact of feedstock acquisition of the ethylene cracker industry:  the best feedstock is the one that will produce the highest margin possible, after deducting byproduct credits.  On the surface this seems simple – just make your product out of the cheapest stuff possible.  But below the surface it can get quite complex.  Of course, deep dives into energy analytics are what we live for here at RBN, so let’s get into the details. 

Two weeks ago we took a deep dive into the great 2012-18 ethane debate. Will we make too much of the stuff?  Or not?  Over the next five years, billions will be spend by the petrochemical industry chasing what promises to be huge margins for conversion of ethane to ethylene.  But it will take time to bring most of that capacity online.  What happens in the meantime?  NGL production from wet shale plays is growing fast.  If the ethane cut exceeds the ethylene industry’s capacity to consume the feedstock, then the excess ethane will be ‘rejected’ back into the natural gas stream. When and if this happens, the price of ethane in Mont Belvieu will drop to something near fuel value at the gas processing plant.  The debate is whether or not this is likely to happen.