US ethane price rises amid Gulf coast shortage

OREANDA-NEWS. April 22, 2015. Mont Belvieu, Texas, ethane spot values firmed about 1.25? in intraday trade, outpacing movements seen in the natural gas market amid Gulf coast supply shortages.

Ethane opened the session sold at 17.25?/USG, at parity with the previous day's highest trade, and rose to an intraday high of 18.5?/USG. Prices later fell and ethane last stood at 18.25?/USG.

Ethane abruptly outpaced natural gas movements today. Ethane ended yesterday's trading session at a 0.256? premium to its fuel value, but today ethane soared and by the late afternoon trading session it last stood at a 1.29? premium.

With current estimates of more than 500,000 b/d of ethane rejection,supply of the petrochemical feedstock tightens at the end of the month.

"This tightening will cause periods of price volatility, especially when petrochemical [producers] do end of the month buying," EnVantage consultant Peter Fasullo said.

However, based on recent trends seen in the market, prices typically settle down in the early part of the month as the ethane supply constraint is temporary.

Ethane prices averaged 16.57?/USG at the beginning of April, after seeing an average 17.91?/USG during the last week of March. Spot prices during the first week of March averaged 18.6?/USG, down from an average 20.47?/USG during the final week in February.

If prices were to increase by about 25-30?/USG gas processors would be incentivized to reject less ethane, because the increase in cost would cover the transportation and fractionation costs that is coupled with extraction.

But if ethane prices rose to that level and less ethane was rejected, supply would flood the spot market and prices would subsequently sink back down.

Until additional demand comes online, such as exports and ethylene crackers, ethane will have a continuous ceiling on prices.

Additionally, DuPont's ethylene cracker in Orange, Texas, a large consumer of ethane, was heard coming back online last week, contributing to April's supply constraint. The cracker went offline in the end of March and last year underwent a two-month scheduled outage that occurs once every seven years.

More ethane buyers were heard in the marketplace today, with about 290,000 bl transacting during the session.