changing price dynamics for Gulf Coast ethane markets
Before Q4 2007, demand for ethane in the ethylene feedstock market in the U.S. Gulf Coast was limited by supply. Ethane prices routinely yielded variable ethylene production costs that were 1-3 ¢ per lb premiums to costs based on light paraffinic naphtha. During 2007, midstream companies constructed 4 large gas plants in Wyoming and Colorado. These plants were based on state of the art processing technology and were deep cut ethane recovery plants. When these plants started up, gas plant ethane recovery in Wyoming and Colorado began a period of sustained growth that persisted through the present day.
The increase in ethane recovery flowed via NGL pipeline grid into Mont Belvieu. Since Q4 2007, ethane markets in Mont Belvieu and the Gulf Coast at large were no longer supply limited but were demand limited. The swing from a supply limited market had the predictable bearish impact on prices. Since Q4 2007, variable ethylene production costs based on ethane were consistently lower than costs based on propane and light paraffinic naphthas.
This fundamental change in the ethane supply/demand balance caused buyers and sellers to adjust their day to day behavior. In today's ethane market, no one wants to accumulate ethane inventory.
Sellers want to sell every gallon of ethane production every day. Buyers now purchase only what they need this month -- secure in the knowledge that ethane supply will remain plentiful next month and the month after ....
As with all markets in transition, plentiful ethane supply at attractive prices prompted knowledgeable ethylene producers to retrofit naphtha plants with substantial ethane cracking capability .. the pendulum will eventually swing the other way .. the key question is when ...
We answer these and many other questions about ethane, other natural gas liquids, and petrochemicals for clients who subscribe to NGL Markets in North America.
excellent points and the details are more precise than elsewhere, thanks.
- Murk