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Naphtha and LPG pricing to pick up

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Hydrocarbon Engineering,

ESAI Energy’s newly published Global NGL Outlook, an outlook on global NGL markets in 2018, reports that naphtha and LPG pricing is starting to resemble the market that investors in NGL-fed olefins capacity were counting on.

The outlook suggests that conditions are emerging for global demand for ethane, propane and butane to increase by more than 600 000 bpd.

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 bpd. 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 US$60s. Meanwhile, it will be a big year for NGL production, with LPG supply from fractionation projected to grow by 300 000 bpd, triple last year’s pace. Higher NGL supply will pressure LPG’s discount to naphtha, stimulating greater petchem demand.

ESAI Energy Principal, Andrew Reed, said: “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 […] 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 bpd increase in global ethane use, it will be a banner year for NGL demand growth.”

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