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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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ANALYSIS: Ethane frac spread sees sharp contraction in July

HOUSTON, July 13, 2016 (PCW) -- The ethane fractionation spread, or the price differential between spot ethane and natural gas, has declined sharply so far this month, but its year-to-date average is showing a strong resurgence on the back of bullishness over demand. While this could incentivize production, once transportation and fractionation costs are taken into account, economics still remain quite soft (see graph below).

Last month, both ethane and natural gas hit year-to-date highs. The last time ethane was assessed above the 25 cpg mark seen on Jun 9 was July 2014, and the last time natural gas was near the $2.94/mmBtu level seen at the end of June was in mid-Jun 2015.

Natural gas was supported by heat waves across the country and increased long positions taken by speculators. Ethane got a boost from natural gas’ rise, but was also propped up by intense buying by companies positioning themselves for ethane exports further out on the curve.

This month, however, both natural gas and ethane prices have fallen dramatically: ethane by about 15%, natural gas, 5%. Natural gas was doused by lower utility demand and some speculators pulling the plug on their long positions, while ethane was stymied by both companies exiting the market after buying their needed supplies for future export and a bearish inventory report from the EIA, showing that ethane/ethylene inventories nearly doubled month-on-month in April.

Still, the ethane frac spread appears to be staging a recovery so far this year (see table below) on strong operating rates at crackers and increasing demand, not only from the petrochemical sector, but also from the first US ethane exports out of Marcus Hook. Going forward, the curve shows that while the frac spread remains in positive territory, it begins to become truly economic (after factoring in logistics costs) in 2Q 2017, presumably with the onset of significant petrochemical demand from a host of new crackers coming online. -- Samantha Hartke

This analysis appeared in PCW's NGLs Week report last week. If you are interested in a free trial of NGLs Week, please email Cindy Bryan ( or Samantha Hartke (

NEXT WEEK: NGLs Week will look at the US ethane/ Asia & European naphtha prices as the US' 2nd ethane export terminal prepares to come online.

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