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NGLs Week is PetroChem Wire's comprehensive summary of price trends, upstream and downstream costs, operations news and supply/demand forecasts. The report contains everything you'll need to understand what's happening in the NGL markets.

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Ethane loses ethylene feedstock advantage on spot price

HOUSTON, Januaary 22, 2018 (PCW) -- Some 10 billion lbs/yr of new ethylene production capacity is expected to come online this year with these plants predominantly cracking ethane. Although ethane was the most advantaged feedstock in terms of its ethylene cash cost for the bulk of 2017, normal butane appears to overtake ethane for that position in Feb and maintains that status through Jan 2020, according to PetroChem Wire forward cash cost assessments (See graph, below).

How did ethane lose this advantage and what conditions are necessary for it to retake pole position?

Ethane has been quite strong, particularly in 4Q 2017 as exports picked up, natural gas prices got a boost from the frigid temperatures and production freeze-offs, and bullish sentiment about increased ethane demand from the new crackers was seen. Butane, meanwhile, was relatively weak in 4Q due to seasonal weakness in gasoline, which was slightly offset by rising exports. Ethylene, the main product seen when cracking ethane, has a relatively flat forward curve, while other co-products, particularly propylene, have significant strength in the front-month.

Spot propylene was assessed Friday at 68.5 cpp, a level last seen in Nov 2014. Other co-products, such as benzene, toluene and xylenes, are also relatively strong, thanks to recovering crude. What has been in normal butane’s favor is that it produces the largest amounts of propylene of all the NGLs in the steam cracking process. With propylene prices soaring and supplies quite snug due to a host of production issues, facilities with butane-cracking capabilities are likely to use C4 as a feedstock.

Only a limited number of ethylene units have that ability. According to PCW estimates, about 8% of total NGL petchems cracking capacity can be attributed to butane. In contrast, ethane demand constitutes about 63% of NGL cracking capacity. Going forward, PCW forward cash cost assessments show ethane becoming the most expensive feedstock in Mar 2019, likely due to the contango in its forward curve from 2Q 2019 onwards, while other NGLs are seeing backwardation during the same time frame. If the industry is so heavily weighted toward cracking ethane and it becomes increasingly disadvantaged, a market correction in ethane prices is more than likely, sources said, in order for ethane to regain its coast advantage. -- Samantha Hartke

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