Future Ethane Prices Could Increase As Rejection Continues

Ethane rejection remains the norm throughout the country, but there are signs of hope for traders as margins have continued to remain theoretically positive throughout the end of the winter and early spring. In addition, the Energy Information Agency (EIA) reported ethane production data for January, which showed the extraction levels rose by 117,000 bbl for the month.

It is likely this was tied to increased demand for propane during the polar vortex event in early 2014, which consequently caused slight increases in E-P mix demand. During this time period, ethane prices experienced their greatestgains, which encouraged producers to extract more volumes.

“We are still expecting U.S. ethane inventories to continue to drop through March, with increases in April and May. By July, our revised balances indicate that ethane stocks should be at 19.6 million bbl as the completion of ethylene plant expansions should push ethane cracking to at least 1.2 million bbl/d, with days-of-inventory supply at 17.0,” En*Vantage said in its Weekly Energy Report for April 2.

According to the report, ethane rejection should be at least 200,000 bbl/d with production levels of 1.1 million bbl/d. “The ethylene industry will have a choice to continue to pay low prices for ethane causing ethane rejection to continue and stocks to fall further or they can pay-up for ethane to induce rejected volumes to come to the market. “

Global Hunter Securities wrote in an April 2 research note that petrochemical companies have been withdrawing ethane from inventory for three consecutive months in order to meet demand. This situation is likely to cause a short squeeze on ethane in the third quarter and result in a minimum of a 20 cents/gal increase above current prices, according to En*Vantage.

That is a very strong positive for producers and traders to look forward to as ethane is currently trading at steady levels. Mont Belvieu prices held firm at 29 cents/gal the week of March 26 while the Conway price increased 1% to 31 cents/gal.

The recent closing of the Houston Ship Channel for four days in late March following a 4,000 bbl fuel-oil spill resulted in a buildup of propane inventories as LPG exports were limited. The return to normal operations at the channel has seen exports rise back to approximately 400,000 bbl/d, which will put pressure on the industry’s ability to reload propane stock levels ahead of next winter.

Stock levels could be rebuilt with increased prices, but so far prices have only increased at marginal levels at both Conway and Mont Belvieu, which implies stocks could be very tight when heating demand returns. The Mont Belvieu price rose 2% to $1.06/gal while the Conway price increased 1% to $1.04/gal, both of which are well below the average prices posted in February and the first quarter of this year.

Refinery turnarounds caused isobutane and C₅₊ prices to increase at both hubs despite West Texas Intermediate crude prices trading at around $100/bbl Conway prices experienced the biggest increases with isobutane increasing 9% to $1.46/gal, its highest price since mid-February. Pentanes-plus (C₅₊) rose 8% to $2.35/gal, the highest it has traded at since the week of Feb. 13, 2013. Mont Belvieu isobutane and C₅₊ rose 1% each with the isobutane price of $1.29/gal being the highest in a month and the C₅₊ price of $2.22/gal being the highest since the week of Sept. 11.

The theoretical NGL bbl. price rose 4% to $43.63/bbl at Conway with an 8% gain in margin to $27.81/bbl. The Mont Belvieu price rose 1% to $42.13/bbl with a 3% gain in margin to $26.39/bbl. The most profitable NGL to make at both hubs was C₅₊ at $1.87/gal at Conway and $1.74/gal at Mont Belvieu. This was followed, in order, by isobutane at $1.03/gal at Conway and 86 cents/gal at Mont Belvieu; butane at 75 cents/gal at Conway and 79 cents/gal at Mont Belvieu; propane at 64 cents/gal at Conway and 67 cents/gal at Mont Belvieu; and ethane at 3 cents/gal at Conway and 1 cent/gal at Mont Belvieu.

Natural gas storage levels continued to fall to five-year lows the week of March 28, which is the most recent data available from the EIA. The agency reported gas in storage fell 74 billion cubic feet (Bcf) to 822 Bcf from 896 Bcf the previous week. This was 52% below the 1.7 trillion cubic feet (Tcf) reported last year at the same time and 55% below the five-year average of 1.814 Tcf.

Heating and cooling demand should remain fairly small as the spring shoulder season continues. There could be a slight bump in heating demand as the National Weather Service is forecasting cooler-than-normal temperatures along the East Coast. Additionally, warmer-than-normal temperatures along the West Coast, which could increase cooling demand.