Frac Spread: Surplus Could Lead To Pro-Pain

Ethane’s price dropped to a 10-month low at Mont Belvieu, Texas, last week but pentanes-plus reached its highest point since October, the month in which it peaked and began a 41% free-fall to less than $1 per gallon (gal).

Ethane inventories on the Gulf Coast were down in December, according to U.S. Energy Information Administration (EIA) data. This was despite, as EnVantage Inc. noted in a report, no increase in ethane cracking demand. The analysts attributed the decrease in stocks to a hike in exports.

Prices will rise for ethane, EnVantage promises, in the second half of the year when a slew of new crackers come online. Among the new facilities:

• Indorama Ventures’ restart of the idled Occidental Chemical cracker (25,000 barrels per day [bbl/d]) west of Lake Charles, La.;

• Westlake Chemical and Lotte Chemical’s jointly owned cracker (57,000 bbl/d) in Lake Charles;
• Shintech’s cracker (28,000 bbl/d) in Plaquemine, La.;
• Sasol’s cracker (85,000 bbl/d) in Lake Charles;
• A ramp-up of operations at Dow’s Freeport, Texas, cracker (28,000 bbl/d); and
• Formosa Petrochemical’s Point Comfort, Texas, cracker (90,000 bbl/d).

The total, as noted by Kelly Van Hull of RBN Energy LLC, is around 313,000 bbl/d. Ramp-up is expected to extend into the early months of 2020, so the collective capacity will likely be in the neighborhood of 250,000 bbl/d by year-end 2019. Still, more capacity than is available right now.

While the Mont Belvieu ethane price continues to struggle, the margin suffered a 17.5% hit in the last week. Compared to the 10-month-ago low price, however, last week’s margin was 23.2% higher.

Propane inventories have dipped 12.1% in the last five weeks but remain 39% higher than last year at this time. In days of supply, 2019’s 35.2 is well above the 26.9 days that EIA reported in 2018. The growing overage means that exports will need to average 1.2 million bbl/d for the year to keep the surplus under control, EnVantage said. For the week ending March 15, the EIA reported average propane exports of 780,000 bbl/d.

Propane’s price on March 20, the day West Texas Intermediate (WTI) cracked $60/bbl, represented 47.1% of the WTI barrel. EnVantage expects the relative price to fall to 45% sometime in the second quarter. It will need to continue to fall to push exports and relieve oversupply on the Gulf Coast.

Normal butane prices slipped at both Mont Belvieu and Conway, Kan., last week as winter gasoline blending demand ends. Mont Belvieu butane’s price was down to 51.5% of WTI, but that should help exports with butane supplies tight in Europe, EnVantage said. Isobutane’s 9.7% premium over butane in the prior week widened to 19.6% last week.

In the week ended March 15, storage of natural gas in the Lower 48 experienced a decrease of 47 billion cubic feet (Bcf), the EIA reported, compared to the Stratas Advisors prediction of a 48 Bcf withdrawal. The figure resulted in a total of 1.143 trillion cubic feet (Tcf). That is 21.6% below the 1.458 Tcf figure at the same time in 2018 and 32.7% below the five-year average of 1.699 Tcf.