The US ethane cracker margin is nearing levels that, prior to 2017, were last seen in the fourth quarter of 2011 as a result of stronger ethane pricing and a weak spot ethylene market.
The US ethane cracker margin sat Monday at 12.68 cents/lb, and prior to 2017, was last below 12 cents/lb on October 20, 2011, according to S&P Global Platts data.
Ethane -- the main feedstock for ethylene -- has been on the rise this year despite relatively stable crude pricing and falling natural gas prices.
Prompt-month non-LST Mont Belvieu purity ethane has averaged 63 cents/MMBtu above the front-month natural gas futures price so far in 2017 and was last assessed Monday at $3.875/MMBtu, nearly $1/MMBtu or 35% higher than at the same time last year.
The premium "reflects the reorganization of the ethane market around higher demand, both from exports and domestic steam crackers," according to Platts Analytics' latest Market Call.
US Gulf Coast ethane prices tend to track NYMEX gas futures because the lightest NGL can be sold as gas. When the price of gas is higher than that of ethane, producers are not incentivized to extract ethane from the gas stream, or "recover" the ethane, which would incur fractionation, storage and transportation costs.
However, the opposite is true when the price of ethane surpasses that of gas, prompting producers to recover more.
US recovery of ethane has averaged 1.34 million b/d so far in 2017, a 10% increase compared with the same period in 2016, according to "Market Call: North American NGLs" from Platts Analytics' Bentek Energy unit.
Ethane's premium over gas futures reached $1/MMBtu in February and fell as low as 20 cents/MMBtu in March, before nearing $1/MMBtu again last week. Stabilizing around 75 cents/MMBtu, the premium "reflects the reorganization of the ethane market around higher demand, both from exports and domestic steam crackers," according to the Market Call report.
The US price of ethane has topped that of prompt gas futures for all but eight days in 2017, as the market prepares for eight new ethane-only steam crackers to start up on the Gulf Coast through 2018, increasing ethane demand by 535,000 b/d by 2019, according to Platts Analytics.
Sources have pointed to the imminent startup of Dow Chemical's 1.5 million mt/year steam cracker in Freeport, Texas, for the spike in non-LST ethane prices, which S&P Global Platts assessed at 25.75 cents/gal Monday.
The expected startups of the Gulf Coast steam crackers, coupled with delays in derivative polyethylene unit startups, have pushed spot ethylene prices to multi-month lows.
Spot ethylene hit an 18-month low on July 10, when it was assessed at 17.25 cents/lb FD USG. On Monday, spot August deliveries -- which are firmer than July deliveries -- were assessed at 20 cents/lb FD USG.
In addition to Dow's 1.5 million mt/year steam cracker, ExxonMobil is expecting to start up a 1.5 million mt/year cracker in Baytown, Texas, and Indorama is expected to start up its 440,000 mt/year cracker in Lake Charles, Louisiana this year.
