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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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NGL 1H review: Butane prices higher on cracking/export demand

HOUSTON, July 26, 2018 (PCW) -- Spot butane prices have risen during the first half of this year and are averaging about 13% higher than the same time a year ago, PetroChem Wire historical data shows.

Butane ended Jun at 111 cpg, up from 104 cpg on Jan 2, a 7 cpg (6.7%) uptick. Over the first six months of this year, butane has averaged 97.61 cpg, compared with 86.27 cpg in 1H 2017. While butane tends to see a seasonal slump at the end of 1Q and into 2Q due to lower butane demand from gasoline blending, it has been supported by healthy petchems cracking and export demand.

For several periods during the year to date, butane has been one of the most economic – if not the most economic – feedstock for ethylene production in terms of its cash cost. While this should have incentivized increased butane cracking demand, there is a limit to the purity product’s consumption by the petchems sector. Butane only comprises about 11.7% of total US ethylene production capacity by feedstock, per PCW estimates.

A bigger boost, however, has come from exports. From Jan-Apr, the US exported an average of 142,500 b/d of butane, compared with 124,500 b/d the same time a year ago, an increase of 14.5%.

Going into 2H, one of the main concerns –- much like propane -- is the possible tariff hikes on US LPG exports to China from the current 1% to 25%. China overtook South Korea as the top importer of US butane last year. China, which is net short butane, implemented a series of new gasoline standards that have effectively tightened carbon emissions, requiring a higher octane rating in the gasoline pool.

This can be achieved through increased butane and isobutane blending. Throwing a wrench in the works is this possible tariff hike from China as part of the ongoing trade war between the two countries. While spot cargoes are likely to be less affected, term contracts could well bear the brunt of the impact.

Already market participants are discussing swapping US cargoes in the Middle East, rerouting cargoes to other ports in East Asia, finding alternate butane sources, or possibly defaulting on term contracts altogether. -- Samantha Hartke

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