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Isobutane weaker relative to butane due to lower alkylate prices, demand
HOUSTON, May 26, 2017 (PCW) -- The normal butane-isobutane spread has grown stronger over the years, thanks to rising petrochemical cracking demand and robust exports for butane. Isobutane, meanwhile, has been dogged by a softer gasoline complex and refiners choosing other octane-boosting components over alkylate, which uses isobutane as a feedstock.
Historically, the spread has tended to blow out at the end of each month as a function of book squaring dynamics or due to major maintenance.
At the end of last year, an outage at an isomerization unit at Enterprise Products Partners’ Mont Belvieu facility led to iso holding as much as a 19.75 cpg premium over normal butane, a level not seen since September 2011 when iso came in at a 39.75 cpg premium over normal on a similar maintenance issue.
On average, however, the relationship has gone from normal butane holding discounts of 3.4-20.4 cpg from 2008-12. With the advent of shale production, from 2013 onwards, the discount has whittled down to 0.3 cpg in 2014 to 2.9 cpg last year. For the year-to-date, normal butane has held a 3.3 cpg premium over isobtuane on average.
Butane’s strength this year is due to its persistent cash cost advantage as an ethylene feedstock, robust exports and the resulting drawdown of inventories that saw February inventories at 38-month-lows.
Isobutane, however, has a less supportive fundamentals. Its primary source of demand (around 80-85%) is for alkylate production which, in turn is used as an octane booster in gasoline.
Alkylate prices have fallen 7.4%, or 14.3 cpg, since 2015, due to declining gasoline prices (down 1.7% or 2.7 cpg during the same time frame) and a preference for the higher-performing reformate as a blendstock for cheap naphtha.
The forward curve suggests iso regains its premium position in July due to historically low butane demand for gasoline blending. -- Samantha Hartke