Non-LST ethane Wednesday morning traded at 30.75 cents/gal, the highest level since November 6 and 29.5% stronger since the beginning of the year, Platts data showed.
Market participants attributed the rise to stronger propane and natural gas prices, freeing up ethane prices to become the most favorable petrochemical feedstock.
Ethane, unlike other NGLs, has limited end uses with product going into either petrochemical production or kept in the natural gas stream to the extent possible to burn for its heating value. As a result, ethane has a natural price floor at the price of natural gas and price ceiling were propane prices are the most competitive petrochemical feedstock.
The NYMEX front-month natural gas contract is trading 22.3% higher from the start of the year, currently at $4.045/MMBtu, pushing up the natural price floor on ethane. The uptick in natural gas is largely due to continued cold weather, which has given a good bump to heating and residential/commercial demand, and the resulting heavy drawdown on gas storage stockpiles, bringing it below record levels reached late last year.
Gulf Coast propane has also climbed dramatically since the beginning of the year, trading at 97.50 cents/gal Wednesday morning, 10.61% stronger since January 1. Propane pieces have turned bullish due to colder weather and increasing exports out of the Gulf Coast. The Midwest region is experiencing storage levels 49% under last year's levels while the East Coast has propane stocks at 47% under 2012 levels. In addition, the completion of Enterprise's Houston Ship Channel export terminal enables ships to load at double the previous loading rate, up to 12,000 barrels/hour.
Nevertheless, ethane still remains in rejection territory for NGL producers, a price where it is more favorable to leave ethane in the natural gas stream for heat as opposed to fractionating it out to be sold as a purity product. Current heating value estimates for ethane are roughly 26.70 cents/gal. However, once fractionation and transportation costs are factored in -- roughly 8-10 cents/gal for Eagle Ford ethane -- rejection remains most favorable.
Ethane petrochemical cracking margins stood at 42.87 cents/lb while propane cracking margins stood at 41.08 cents/lb. Therefore, petrochemical producers could start maximizing ethane feedstock inputs to yield higher margins, further increasing demand in the short term for ethane and helping to support prices.