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PetroChem Wire’s Year in Review: Normal butane, isobutane and natural gasoline
HOUSTON, December 28, 2016 -- Much like the other purity products in an NGL barrel, normal butane, isobutane and natural gasoline have had a volatile year. The butanes hit highs this month not seen since October 2014 and fell to all-time nadirs in January.
Similarly, natural gasoline hit its intra-year high in early December, matching levels not seen since July 2015, but also hit an all-time low in February (note: PCW began assessing NGLs in 2007).
While a lot of this rollercoaster action has to do with crude oil and gasoline, what has been interesting about the butanes relationship this year is the blowout of the isobutane-normal spread. In early December. That premium hit a four-year high of 19.75 cpg.
While typical book-squaring dynamics certainly played a part in this blowout, a short squeeze on the spread itself and maintenance at Enterprise Product Partners’ isomerization unit at Mont Belvieu exacerbated a tight supply situation. That maintenance recently ended, effectively pulling the plug on the overblown premium.
Isobutane has been assessed as much as a 20 cpg discount to normal butane, the largest such discount since PCW began assessing NGL prices. Sources also attributed the end of this stout spread to the exit of some NGL players from the marketplace, having gotten caught at the wrong end of this short squeeze.
The recent strength in normal butane, however, has much to do with resilient gasoline prices in the face of record high driving demand, exports and the looming Tier 3 gasoline standard in Jan 2017. Market sources pointed to a profitable arb from the US to Europe in November and December, resulting in increased exports (EIA will release its monthly export data on Dec 30). With the surge in normal butane prices, however, that arb has closed for January cargoes. The surge in butane also resulted in it holding a rare premium over natural gasoline, coming in at 8 cpg Friday, the first time this has happened all year and matching levels last seen in Jan 2009.
Going forward, however, demand for these purity products from the petrochemical sector appears dim. Normal butane lost its cash cost advantage to ethane in mid-October and may only regain it in 3Q 2017, according to PCW’s cash cost forward curves. Even then, with new ethane-only crackers coming online and an expected increase in ethylene demand, it is expected that cracking demand for butane may not increase significantly. -- Samantha Hartke