Trade Resources Industry Views The Price Differential Between US Gulf Coast Butane and International Markets Has Eclipsed

The Price Differential Between US Gulf Coast Butane and International Markets Has Eclipsed

Tags: Butane, Chemicals

The price differential between US Gulf Coast butane and international markets has eclipsed that of US propane but the US has failed to see a pick up in butane cargo liftings, according to market sources.

"I guess it's a logistic restriction," an LPG lifter from a Gulf Coast terminal said Wednesday. "Butane is much cheaper than propane right now. Last year, during December, it [butane] was about $400/mt over propane."

The widest price differentials for LPG from the US are currently between Houston and Asia.

The difference between Mont Belvieu, Texas, butane and delivered Japan butane measured $558/mt on Wednesday, while the difference between propane markets was $378.89/mt, Platts data shows.

Mont Belvieu butane was trading at $1.36/gal ($616.08/mt) Wednesday morning, 1.75 cents lower. Propane was trading at $1.3150/gal ($685.11/mt), putting it 25 points higher from Tuesday.

The spread between Mont Belvieu propane and butane, now at 4.5 cents/gal, is the tightest it has been since late-2008 and a function of propane's strength and butane's weakness.

Propane at Mont Belvieu is 82.6% above the corresponding period last year, surging since mid-June 2013 as export infrastructure started to reduce an overhang in stocks. In addition, robust crop drying demand during the fall harvest season and colder weather has helped draw propane barrels from storage. Total US propane stocks measured 26.1% lower than 2012 levels at 52.61 million barrels, data from the US Energy Information Administration showed Wednesday.

Meanwhile, butane stocks have increased from their 2012 levels with total butane stocks in the US measured 58.94 million barrels in September, 2.17 higher than 2012, according to EIA data.

Butane production, along with all NGLs, has surged over the past five years in connection with growing shale gas production. Total US butane production measured million 230,000 b/d in September, up from 135,000 b/d just five years ago.

However, unlike propane, growing butane production has been unable to find an outlet. Total gasoline production, the main outlet for butane, has grown 7.4% since 2008 and has thus far been unable to absorb growing butane. Meanwhile, isomerization demand, which converts normal butane to isobutane, has fallen as more isobutane is being supplied from shale gas.

The spread between normal butane and isobutane was talked at flat Wednesday compared to an isobutane premium of 11.75 cents/gal a year ago.

Finally, butane can be fed into an ethylene plant to produce petrochemicals. But, butane cracking has dropped in the past few years as historically cheap ethane displaces the heavier butane feed.

Consulting firm EnVantage estimates that about 100,000 b/d of butane is currently being cracked in the US with crackers only able to handle about 50,000 b/d barrels of additional barrels.

"There is a limitation on how many butane barrels a cracker can take," said Peter Fasullo of EnVantage. "You don't want to tank the co-products like butadiene."

Butane cracks to gasoline illustrate the relative weakness of butane.

Butane's discount to finished Gulf Coast gasoline was $1.07/gal on Tuesday, compared to a discount of 51.71 cents in 2012 and 56.55 cents 2011.

LPG export capacity has increased at a significant pace in the past year, with EIA data showing US propane exports at 10.04 million barrels in September, compared to 4.45 million barrels in September 2012.

However, the vast majority of LPG exports have been propane as term lifters out of Enterprise's and Targa's Houston Ship Channel export terminals own long term contracts to lift propane.

Butane exports measured 907,000 barrels in September 2013, compared to 520,000 barrels a year ago, EIA data showed.

"Butane exports will pick up after first of year on a limited basis," a Gulf Coast source said.

A very large gas carrier, which is capable of loading butanes and propane, can carry around 44,000 mt of LPG. These vessels have four 11,000 mt compartments that can load refrigerated LPG at Targa or Enterprise. Market sources have said that contract holders with Enterprise and Targa may have options to load cargoes with mixed LPG. For example, three hulls of a VLGC cargo could be loaded with propane and one hull with butane.

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Limited Butane Arbitrage Seen out of US Despite Price Advantage
Topics: Chemicals