US propane to rebalance in 2013, retain strength compared with ethane: bank
Houston (Platts)--22Oct2012/419 pm EDT/2019 GMT
Bank of America Merrill Lynch said Monday the outlook for US propane
prices heading into 2013 was stronger than that for ethane due to the
latter's oversupply issues and weak cracking margins.
In a note to investors, the bank said the US propane market would
rebalance in 2013 from its current excess of supply as greater export
opportunities opened up and winter heating demand recovered.
The bank added that while propane in the US has a broad production base,
which would ensure amply supply, a normal winter would support demand growth
on a year-over-year basis.
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Ethane margins, on the other hand, have contracted sharply as producers
attempt to clear the supply glut by leaving ethane in natural gas, rejecting
nearly 160,000 b/d of opportunities, which has led to some price
stabilization as inventories scaled down.
Ethane prices are not likely to trade above natural gas by much more
than the cost of fractionation, it said, as limited ethane cracking capacity
will keep demand low.
Beginning in 2013, the spread between ethane and propane will likely
widen compared with current levels, as propane renews its correlation with
crude oil, and traders meet export-led demand.
The expected surge in exports will also narrow the difference between
prices of propane at Mont Belvieu, Texas, and in Northwest Europe, it added.
Currently, Mont Belvieu propane is trading at a 49% discount to European
levels, compared with a discount of 1% between 2002 and 2009.
The bank sees US propane export capacity expanding by 117,000 b/d by the
end of 2012, and an additional 60,000 b/d to 325,000 b/d in 2013.
Early Monday, Mont Belvieu ethane was trading at 33.50 cents/gal, while
propane was trading at 97.25 cents/gal.
--Subhan Usmani, firstname.lastname@example.org
--Edited by Keiron Greenhalgh, email@example.com