The Ethane Mullet – Rejection in the Front, Party in the Back

Ethane prices saw impressive strength in May and June, increasing 4cpg on average across the curve when compared to March and April. Strength in prompt month natural gas prices and deferred ethane consumer hedging were the culprits, leading to the highest front month ethane price in two years. Ethane production in May and June surged to a record 1.4MMbbl/d, nearly 200kbbl/d higher than early 1Q16 levels. However, this ethane was not needed by the market yet. 2016 demand is only 50kbbl/d greater than last year. Therefore it essentially all went to storage. Excessive ethane inventories coupled with expectations of higher 2017+ demand have produced a very weak ethane curve. Trader expectations for tighter 2017 and beyond markets have kept deferred prices at the new elevated level. Wood Mackenzie expects increased rejection to send ethane production back to 1.2MMbbl/d for the rest of 2016. Stocks will remain elevated until 2017 when new steamcracker demand takes off.