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Tight fractionation capacity to persist through end-2019

HOUSTON, September 24, 2018 (PCW) -- Spot ethane prices have been on a rollercoaster ride over the last few weeks, particularly in September where they have been assessed from 42-61.25 cpg, levels last seen in January 2012, according to PetroChem Wire historical data.

There are ample fundamental reasons for this recent strength: record exports and petchems cracking demand, despite record production levels. A PCW supply/demand and logistical analysis has shown that the real logjam is fractionation capacity.

Raw mix NGL production, particularly out of PADD III has now overwhelmed the region’s ability to split Y-grade into the various purity products (See graph, below). PCW’s analysis shows this issue began rearing its head in March, likely on the back of improving frac spreads as nat gas softened, which encouraged greater ethane recovery, and rising Permian production. Incremental frac capacity soon came online in July in the form of ETP’s 120,000 b/d Frac V at Mont Belvieu, but that relief was short-lived.

The frac deficit quickly blew out again and is expected to remain so through 2Q 2019. Targa’s 100,000 b/d Frac VI at Mont Belvieu is expected to begin service in 1Q 2019 and ETP’s 140,000 b/d Frac VI should follow suit in 2Q. But based on production forecasts from various analysts even that could prove insufficient. In 3Q a slew of pipelines are expected to bring in more raw mix from the Permian, which is likely to overwhelm frac capacity at Mont Belvieu and the surrounding region once again.

Frac capacity could remain tight through end-2019, PCW posits, with yet another round of relief coming in 1Q 2020. Oneok’s 120,000 b/d MB-4 fractionator at Mont Belvieu and Enterprise’s 150,000 b/d Frac V are expected to begin service then, with Phillips 66’s two new Sweeny fracs following at the end of that year.

 Although spot ethane has come off from its 60 cpg highs this week, the curve remains at elevated levels with values remaining above 36 cpg through Sep 2020, per Thursday’s assessments. In comparison, forward assessments in Jan showed Sep-Jan 2020 values between 28-33 cpg. The curve began to see a significant bump in mid-Sep when all values throughout the 24-month forward curve were assessed above the 32 cpg mark. Values are likely to remain well-supported so long as the tightness in frac capacity in PADD III persists. -- Samantha Hartke

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