Ethane Margins Down Due To Cracking Capacity Shortage

After a strong spring, ethane margins began to tumble as the season began to come to close. Natural gas liquid (NGL) prices had benefited from increased cracking from ethylene producers, as it is more profitable as a feedstock compared to naphtha. However, cracking levels fell in May due to several ethylene plant outages in both Mont Belvieu and Conway.

These outages in the Mont Belvieu region included a planned 60-day turnaround at LyondellBasell’s OP-2 cracker in Channelview, Texas, as well as Flint Hills Resources’ Port Arthur, Texas, cracker that was taken offline due to a fire.

En*Vantage estimated ethane cracking in the month of May fell to approximately 920,000 barrels per day (b/d) from 930,000 b/d the prior month. However, the company anticipated a strong return to cracking in June with levels possibly reaching 980,000 b/d if all of the ethylene plants offline come back.

“The implications are that we could see ethane inventories dip below 20 million barrels with days of supply at 20, which would signify a tight market,” the company said.

Ethane cracking capacity in Conway was also reduced in early June due to the outage of Equistar’s ethylene plant in Morris, Illinois. The facility was struck by lightning and is facing 30 to 60 days of repair work. This resulted in a 3% drop in price for ethane at Conway to 47¢ the week of June 1.

“We caution our clients not to panic, thinking this is the start of a long-term ethane oversupply situation. It is a temporary imbalance in the Midcontinent, which is a very shallow market for ethane,” En*Vantage said in its Weekly Energy Report for the week of June 9.

Propane margins improved at both Conway and Mont Belvieu as the market finally began to correct propane prices, which had been too low given that inventory levels were at five-year low levels. Inventories are down because of increased domestic use and high export levels. This raises the very real prospect that propane prices may increase significantly in the winter should demand be higher than normal and cause a further supply shortage.

NGL Value in $/MMBtu