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NGL 1H review: Ethane prices jump on record demand
HOUSTON, July 9, 2018 (PCW) -- Spot ethane prices have hit multi-year highs in the first half of this year amid record demand from exports and petchems cracking. Ethane closed out the month of Jun at 34.625 cpg, per PetroChem Wire prices, a level last seen since Feb 2014.
Over the first six months of this year, ethane has risen 10.125 cpg, or 41.3%, averaging at 27.1 cpg. In contrast, in 1H 2017, ethane only rose 0.5 cpg, or 2%, and averaged 24 cpg. Additionally, ethane has consistently diverged from natural gas values over the past two months, an indicator that demand has kicked in sufficiently to trump supply as the more dominant driver of ethane’s price behavior.
From the demand side, NGLs Week pointed out in a prior analysis that petchems cracking demand for ethane rose about 85,500 b/d in 2017 over 2016 levels, or about 90%, and 2018 should end with an uptick of nearly 103,000 b/d (57%), according to PCW estimates.
Exports, which include pipeline and waterborne movements, hit a record in Apr of 319,000 b/d, according to EIA data. PCW’s monitoring of ethane vessel movements suggests waterborne exports increased to about 130,000 b/d in May and 213,000 b/d in Jun. Assuming pipeline exports to Canada hover between 100,000-110,000 b/d, ethane exports should see new highs in Jun.
On the supply side, ethane production set a new record in Apr at 1.719 million b/d. With the ethane frac spread continuing to look healthy into Jun, record production levels are highly likely to continue.
Going into 2H, these bullish fundamentals seem unlikely to abate. However, forward curve values indicate increasing backwardation 1Q 2019. Several large petchems producers have been seen pushing longer-dated values downward since the front-month began its run toward multi-year highs in an attempt to lower production costs.
As ethane’s value has increased, spot ethylene prices have cratered to multi-year lows, taking production margins into negative territory. Currently, ethane only becomes profitable as an ethylene feedstock in Aug, per PCW’s forward cash cost assessments. The battle between front-month strength and a softening curve should continue to play out for the remainder of the year. -- Samantha Hartke