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ANALYSIS: US-Asia/Europe ethane exports to increase amid narrow price arbitrage

HOUSTON, July 21, 2015 (PCW) -- This week, Enterprise Product Partners began commissioning its 200,000 b/d ethane export terminal along the Houston Ship Channel, allowing US ethane to be shipped from the Gulf Coast to either Asia or Europe for the first time.

Earlier this year, US ethane was exported from the Marcus Hook terminal in Pennsylvania to crackers in Norway. According to maritime data, about a dozen cargoes have been shipped to Europe. Per vessel tracking data, one ethane ship – the JS Ineos Insight – is heading toward the Houston Ship Channel and is expected to arrive at the end of July, perhaps to move the first ethane cargo from the EPD terminal. Offtakers from the facility include India’s Reliance, Switzerland’s Ineos and China’s Oriental Energy. India’s GAIL is also said to be mulling USGC ethane exports, as is Saudi Arabia’s Sabic.

These ethane exports, however, are occurring at a time when the price arbs between US ethane and European and Asian naphtha (ostensibly the feedstock it will replace) are razor thin (see graph, page 1). The differential of US ethane (including shipping and terminaling fees) to Japan naphtha came in around 12.1 cpg on Friday, compared to 24.7 cpg a year ago. For the year-to-date, that differential has lost about 26.7% of its value compared to same time frame a year ago. Even the European naphtha-US ethane differential is under pressure.

On Friday, that differential (again, after including shipping and terminaling) stood at 15.2 cpg, compared to 25.5 cpg the same time a year ago. The year-to-date differential has lost 46.6% of its value compares to the same time frame in 2015 (see graph below).

However, most US ethane term deals were likely contracted at levels cheaper than current spot prices. But with both spot and contract US propane and butane exports now being cancelled due to whittling arbs to both Asia and Europe, the question then becomes if ethane exports could face a similar fate. -- Samantha Hartke

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