Purity ethane prices in the US Gulf Coast strengthened Tuesday on higher natural gas futures prices, market sources said.
Platts assessed April ethane at 79.25 cents/gal, up one cent from the previous day as NYMEX May natural gas prices rose 12.4 cents to $4.262/MMBtu.
Historically, ethane prices have been tied more closely to crude oil and liquid prices, but with ethane supplies burgeoning as new resources are extracted in the upper Rocky Mountain region and the Marcellus and Eagle Ford shales, natural gas prices may play more of a factor in the shifting paradigm, according to Platts' data analysis.
Since October 2010, front-month natural gas has averaged $4.091/MMBtu, or on a per-barrel basis at $23.73. The price of crude oil averaged $91.43/barrel during that time, while Mont Belvieu purity ethane averaged $27.43/b. Relative to each benchmark, ethane traded at 116% of natural gas versus 30% of crude oil over the past four months.
But when compared with the price of natural gas since October 2008, ethane averaged 88% of gas over the past three years. Relative to crude oil during that time, ethane averaged 31%.
"As long as the price of natural gas to crude is wide and natural gas prices are low, ethane will likely trade alongside the price of natural gas," an analyst with Standard & Poor's who asked not to be named said.
With the expanded price between crude and natural gas, the cost structure of the US petrochemical industry has benefitted because a sizable portion of US producers can adjust inputs to consume light-end NGLs instead of heavier-oil based products like naphtha.
"Never underestimate the ability of the US chemical industry to take in more ethane," Enterprise Products Partners Vice President of NGL marketing Lynn Bourdon said at a recent industry conference.
Current US ethane demand is about 950,000 to 1 million b/d, and with added ethane supply via new projects and added NGL fractionation capacity, US ethane demand may grow to 1.05 million b/d by next year, according to Bourdon.
This adjustment of feedstocks has allowed US chemical producers to remain competitive with producers in Asia and Europe, the S&P analyst said, adding that the value of the NGL barrel is driving an infrastructure build-out as growing supplies of natural gas via shale gas plays are adding to the supply basket.
However, some analysts caution a supply overhang on ethane if demand does not keep up with supply levels. Analyst Darren Horowitz of Raymond James said the ability of midstream producers to add supply will outpace demand, and "increasing liquids-rich unconventional gas production will likely pressure NGL prices over the next 12 to 18 months."
Analysts at FBR Capital Markets suggest that while pricing for NGL will remain agnostic to the influx of new supply, ethane will be more sensitive to supply growth.
"Even if ethane prices dropped permanently to price parity with natural gas, it would not erode the economics of liquids-rich basins enough to meaningfully affect" the price sensitivity of ethane, FBR said.
