RBN Energy: Implications of Recent Turbulence in the Ethane to Henry Hub Gas Ratio Ethane.
Ethane has been in the doghouse for years since the shale gas boom kicked in, with production greatly exceeding demand and hundreds of thousands of barrels per day being “rejected” into the natural gas stream – owing to the fact that netbacks for liquid ethane are lower than pipeline natural gas.
One way to understand that relationship is to track the price ratio of ethane at Mont Belvieu, TX to natural gas at Henry Hub, compared on a BTU basis. That ratio of ethane-to-gas languished at 95% between Q1 2014 through the summer of this year, and in November 2014 dipped to only 61%. That means that the BTU value of ethane at that point was only 61% of natural gas. Ethane that cheap is an awesome value for steam crackers using the feedstock to produce ethylene and other petrochemicals.
But a couple of months ago (September 2015), the price of ethane started to ramp up relative to gas, blasting through 140% in late October. Is that bad news for future ethane prices? What does that portend for ethane once all the new steam crackers being built come online and overseas exports – also coming soon -- ramp up. Today we look at the recent rebound in the ratio of ethane to natural gas and consider whether this is a signal that ethane is out of the doghouse.