God Only Knows - Why Did the Normal Butane Market Go On a Holiday Bender?

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.

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As its name suggests, normal butane (C4), with its four carbon atoms per molecule, is a no-drama, middle-of-the-pack natural gas liquid (NGL) that’s heavier than ethane (C2) and propane (C3), lighter than natural gasoline (C5+), and is a close cousin to isobutane (IC4), an isomer of normal butane that (as we’ll get to in a moment) is a bit more exotic. As we said a while back in My Time Has Come, most normal butane is supplied by natural gas processing plants and fractionators, which separate NGLs from the raw gas stream (processing plants) and split the mixed NGLs into “purity products” (ethane, propane, normal butane, isobutane and natural gasoline); the balance of normal butane supplies come from refineries. Most normal butane is used as a motor gasoline blendstock (see Wasting Away in Butane Blendingville), primarily during the colder months of the year, when federal environmental regulations allow gasoline to have a higher Reid vapor pressure, or RVP. RVP is a measure of volatility, that is, the tendency of a substance to vaporize (see Regulatory Vapor Pressure Party); normal butane has a very high RVP of 52 pounds per square inch, or psi, and blending it into gasoline encourages vaporization—good for starting car engines when it’s cold outside but not so good for engine operation and the environment when it’s hot. About 30% of normal butane produced by gas processing plants is used as a feedstock in ethylene plants (steam crackers), and smaller volumes of normal butane are used as feedstock for butamer (isomerization) units to produce isobutane. Isobutane’s primary used is as a feed for refinery alkylation units, which produce a high-octane gasoline blending component called alkylate (see You Can Just Iso My Butane). Isobutane also is used as a propellant in shaving cream, cooking sprays and the like; as the liquid fuel in “Bic”-type lighters; a replacement for Freon in refrigeration equipment; and—more exotically—for calorimetric measurements, calibration of gas mixtures and emissions monitoring.

As you can see in Figure 1, isobutane and normal butane prices have had a generally consistent relationship over the past few years, with their differential mostly holding steady between zero and $0.05 or $0.10/gal—rarely does the price of isobutane undercut that of normal butane, and even when it does it’s mostly by only a fraction of a penny. Well, until this past holiday season, that is, when isobutane all of a sudden was selling for as much as $0.22/gal less than normal butane—an absolutely stunning thing.

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