Ethane margins are experiencing a boon in the U.S. due to increased demand from the petrochemical industry. From March 8 to April 7, Mont Belvieu ethane margins rose 12% while Conway margins improved by 23%. Although costs have been increasing, they are not expected to rise at such a rate that would limit demand.
A report on April 18 from Fitch Ratings stated that the trend of petrochemical producers favoring ethane over naphtha to produce ethylene will continue for the foreseeable future.
"The aggressive multi-year capex budgets announced by exploration and production companies for onshore liquids-rich shale drilling in North America suggest this trend may not abate for some time," the report said.
Although demand is expected to increase from the petrochemical sector, ethane will maintain its price advantage due to abundant supplies from high levels of production. "The trend of ample NGL supply may last for some time, to the benefit of North American chemicals producers," Fitch said.
The report noted that as of February 2011, ethane-based production of ethylene cost about 31¢ compared to naphtha-based ethylene cost of 56¢. This trend has been in place since 2008 and results in some 70% of ethylene cracker capacity being geared to ethane.
Ethane prices in the Gulf Coast experience significant increases due to its location as the primary petrochemical market in the U.S. Conway ethane prices rise more slowly.
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