Propane has received a lot of airtime in recent months given the Polar Vortex and heavy crop drying demand anomalies coinciding with growing propane export volumes. Now it’s time to show normal butane a little love as normal butane exports almost tripled from this time last year. In January 2013, 22 Mb/d of butane was exported; that number was 63 Mb/d in January 2014, as reported by the EIA. All indications are that butane export volumes will be experiencing an astronomical growth rate over the next five years, reaching 300 Mb/d by 2019. What are the factors driving this rate of growth, and what are the implications for refiners and petrochemical companies? In today’s blog, we assess the rapid growth in normal butane exports.
For more on the propane demand anomalies that occurred over the past six months see A Perfect Storm – Polar Vortex Turns Propane and other NGL Markets Upside Down. We also covered more detail on growing propane exports in Sail Away – Propane Exports Exceed 400 Mb/d for the First Time. Growing volumes of NGLs, as a result of the shale gas revolution is also not a new story, and it’s one we have covered in-depth. Most recently we talked about overall production trends resulting from the Shale Revolution in The Future’s So Bright I’ve Gotta Wear Shades – Crude, NGLs and Natural Gas Outlook. Normal butane is riding that wave of increasing production along with the other NGLs.
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Butane Demand and Supply
Most normal butane is used in the blending of motor gasoline. As a gasoline blendstock, butane has a high octane number (91), which is good, but it also has a high Reid vapor pressure (RVP) level, which is not so good, especially in the summer. During the winter, refiners blend greater amounts of butane into gasoline because it is cheap, has high octane, and because government Clean Air regulations permit the sale of gasoline with a higher RVP. But in the summer, those same regulations specify lower RVP maximums in gasoline, which dramatically reduces how much butane can be blended in. When that happens, many refiners produce more butane than they can use, adding to the butane produced from gas processing plants. Thus butane inventories tend to swing widely from the winter season (low inventories) to the summer season (high inventories). All things being equal, butane prices work in the inverse – higher in the winter and lower in the summer. We discussed butane blending in gasoline in Wasted Away in Butane Blendingville and Regulatory Gas Pressure Party. Smaller volumes of normal butane are also used in the petrochemical industry as an olefin unit feedstock and as a feed for butamer (isomerization) units to produce volumes of its sister NGL product, isobutane (see You Can Just Iso my Butane).
Normal butane is largely supplied by natural gas processing plants, but about 21% of production in 2013 came from refineries. Production of normal butane from gas processing plants has grown from just over 215 Mb/d in 2009 to 300 Mb/d in 2013 (85 Mb/d or 28% over four years). From refineries net production of normal butane has actually fallen slightly over the same period. In 2013 net production of normal butane from refineries was 65 Mb/d, having averaged 68 Mb/d over the past four years.
How has this production growth impacted normal butane prices over the past couple of years? Figure #1 below shows the price of normal butane at Mont Belvieu, which has weakened since the beginning of 2012 (left side) and the price of Mont Belvieu normal butane as a percentage of West Texas Intermediate (WTI) crude oil (right side). Since Normal Butane is used primarily as a motor gasoline blendstock, its price tends to move in close relation to crude oil. However, that relationship has shifted in the past two years. In 2012, the price of normal butane averaged 73.5% of WTI. So far in 2014, that number has been about 55%. So the recent supply growth has weakened both the absolute and the relative-to-WTI price of normal butane.
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