Naphtha and LPG pricing is starting to resemble the market investors in NGL-fed olefins capacity were counting on. According to ESAI Energy's newly published Global NGL Outlook, an outlook on global NGL markets in 2018, conditions are emerging for global demand for ethane, propane and butane to increase by more than 600,000 b/d.
Price movements and anticipated NGL supply growth set the stage for the biggest year yet for NGL demand growth. Demand for propane and butane, or LPG, will grow 340,000 b/d. As Brent flirted with $70 in January, naphtha prices rose but propane and butane prices did not, resulting in wider discounts to naphtha. Those discounts make propane and butane more competitive as petchem feedstock. While ESAI Energy does not expect further increases in the crude price this year, crude will be high enough to keep naphtha in the $60s. Meanwhile, it will be a big year for NGL production, with LPG supply from fractionation projected to grow by 300,000 b/d, triple last year's pace. Higher NGL supply will pressure LPG's discount to naphtha, stimulating greater petchem demand.
“The ride has been bumpy, but the market is transitioning from low oil prices and LPG scarcity to higher prices and an abundance of LPG,” comments ESAI Energy Principal Andrew Reed. “In 2017, as oil prices began their recovery, there was a real scarcity of LPG that caused prices to strengthen relative to naphtha. This year, relatively high naphtha prices and an abundance of LPG will make the latter a more attractive petchem feedstock. Combined with a 300,000 b/d increase in global ethane use, it will be a banner year for NGL demand growth.”
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