ethylene cracker

Prices headed up!!  That’s something that you haven’t heard much lately.   But big changes are just over the horizon for NGLs as new petrochemical plants and export projects come online.   These projects will encounter a market environment far different than what was expected when they were being planned.  Instead of an oversupplied market driving NGLs lower relative to crude oil and natural gas, the projects will confront a tight market, with NGL prices higher relative to the other hydrocarbons. In today’s blog we explain why what must go up must come down, and vice versa.

Ethane has been in the doghouse for years since the shale gas boom kicked in, with production greatly exceeding demand and hundreds of thousands of barrels per day being “rejected” into the natural gas stream – owing to the fact that netbacks for liquid ethane are lower than pipeline natural gas. One way to understand that relationship is to track the price ratio of ethane at Mont Belvieu, TX to natural gas at Henry Hub, compared on a BTU basis.  That ratio of ethane-to-gas languished at 95% between Q1 2014 through the summer of this year, and in November 2014 dipped to only 61%.  That means that the BTU value of ethane at that point was only 61% of natural gas. Ethane that cheap is an awesome value for steam crackers using the feedstock to produce ethylene and other petrochemicals.  But a couple of months ago (September 2015), the price of ethane started to ramp up relative to gas, blasting through 140% in late October.  Is that bad news for future ethane prices? What does that portend for ethane once all the new steam crackers being built come online and overseas exports – also coming soon -- ramp up.  Today we look at the recent rebound in the ratio of ethane to natural gas and consider whether this is a signal that ethane is out of the doghouse.

With U.S. ethane prices low and ethane rejection expected to continue increasing, interest in exporting liquid ethane is ramping up. But there are significant barriers to these exports, including: (1) loading and unloading terminal infrastructure, (2) shipping, (3) pricing, and (4) petrochemical demand.  We examined the first two of these barriers earlier this week.  Today we wrap up this blog series, examining pricing and demand.

We’ve done several blogs over the past months about the impact of the back-to-back crop drying and Polar Vortex anomalies on natural gas liquids (NGL) prices in general and propane prices in particular.  Today we are going to take a walk further downstream and look at how increasing propane exports, the weather related anomalies and subsequent price spikes shifted the petrochemical feedstock slate.    From mid-year 2013 to early 2014, huge volumes of propane were backed out of the petrochemical sector, replaced for the most part by ethane.  These swings have important implications for the future consumption of NGL feedstocks by petchems.  In today’s blog, we assess petrochemical feedstock switching in the 2013-14 timeframe, and beyond.