Gas liquids supply to be pinched by high natural gas prices

LAKEWOOD, N.J., Dec. 8, 2000 (PRNewswire)— High natural gas prices could actually pinch the availability of gas liquids such as propane, butane, isobutane and chemical feedstocks this month, an analysis by OPIS Energy Group shows.

Tight supplies are predicted in Louisiana and other markets where gas processing plants have been shut down recently. The plants have been closed because natural gas prices are higher than the gas liquids that are usually extracted from the raw gas stream. The usually more expensive liquids can be sold for much more if they remain in the natural gas that is then sold downstream.

A survey by Oil Price Information Service reveals that upwards of 50 percent of all gas plants in the Louisiana region could be completely shut down for December, with the rest of the plants operating at reduced level. Fractionators, which turn the raw gas liquids feed into propane, butane and other products, will be shut down since there will be little "raw feed" to process into these gas liquids. Two of the largest fractionators have already committed to shutdowns this month.

Because of the tight supply, prices have soared by as much as 20% for propane and other feedstocks produced by the gas plants. The surge in prices has in turn led chemical plants that make ethylene to consider partial cutbacks since they can't afford the additional cost of feedstock in a market that has ample supplies of ethylene.

Currently, monthly contract negotiations between gas liquids suppliers and petrochemical customers are underway for December volumes. Early deals for ethane, a key feedstock, have been done around 51cts gal, a 25% rise from five weeks ago. There are predictions that ethane prices could rocket as high as 60cts gal before the negotiations are completed.

The gas plant closures could even impact gasoline prices. The shutdowns have led to tighter supplies of normal butane, a key component that raises octane and vapor pressure in Winter gasoline blends. OPIS confirmed that some Louisiana refineries are scrambling to find normal butane in Texas markets where the gas plant closures haven't yet impacted supply.

It's not just the Gulf Coast that has witnessed an upsurge in gas liquids numbers. In the Pacific Northwest, refiners are actively burning gas liquids, particularly propane, as refinery fuel. Spot prices and wholesale prices for propane in California are running at about 91-95cts gal, which is as much as 50cts gal under its value to refiners as a boiler fuel these days.

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