It was a wild ride for Asian butane in 2017, driven by a range of diverse market factors, including U.S. ethane and LPG exports, a government program in India to encourage switching from firewood to LPG, the OPEC/NOPEC crude oil production cuts and LPG contract pricing set by Saudi Arabia. It was a textbook example of how today’s energy markets are buffeted by changes in production trends, government intervention and the growing influence of exports. Today, we introduce a series on the supply and demand dynamics that shaped Asian butane markets in 2017, and that will drive LPG markets in Asia, Europe and the U.S. in coming years.
Butane, one of the two natural gas liquids that is also known as LPG (liquefied petroleum gas; the other being propane), has been a frequent topic here in the RBN blogosphere. In the U.S. context, we are generally referring to normal butane, that product used in U.S. markets primarily as a motor gasoline blending component (see Wasted Away in Butane Blendingville and Regulatory Gas Pressure Party - RVP), and to a much lesser extent as a petrochemical feedstock. Over the past 10 years, U.S. normal butane production from natural gas processing has doubled, while domestic demand growth has lagged, resulting in growth in exports (see When My Ship Comes In), although the growth in butane exports has only been a fraction of the increase experienced by its sibling LPG product, propane. Nevertheless, U.S. butane has been through disruptive market conditions, in part due to export dynamics, the most recent of which was in late 2016 and the first week of January 2017 when the price for normal butane spiked to more than $1.20/gal from only $0.73/gal in November 2016 (see God Only Knows). Butane prices corrected in mid-January 2017, surged again in February, only to return to $0.73/gal in March. It turns out that part of that sequence of events was driven by developments half a world away. We’ll get back to those developments later.
But first, for our U.S. readers, we need to review some key attributes of international LPG markets. While propane and butane are priced by volume, in cents per gallon in the U.S. (Mont Belvieu, TX, prices from 2/2/2018 were 84.50 cnts/gal for propane and 96.06 cnts/gal for normal butane), prices in international markets are quoted in dollars per metric ton. There are 521 gallons in a metric ton of propane and 453 gallons in a metric ton of normal butane. So, do the math. ($0.845 * 521 = $440/ton of propane; $0.9606 * 453 = $435/ton of butane, both OPIS numbers). Note that when we did the conversion, the two products flip-flopped in value. When priced by volume, butane today is more expensive. But when priced by weight, propane is more expensive. That dynamic has important implications in international markets. (There is one more factor that we won’t get into here: Most butane in international markets contains a blend of both normal and isobutane, and isobutane (iso) has 469 gallons per ton, making the proportion of normal and iso important to the volume/weight conversion. To keep this story simple, we’ll ignore this factor for now.)