NWE Propane’s Discount to Naphtha Smallest in 7 Months

(September 7, 2018) — Large propane cargos have narrowed to their smallest discount against cif (cost, insurance, freight) Northwest Europe (NWE) naphtha cargos since late January, driven by strengthening propane prices and a relatively flat naphtha market, S&P Global Platts reports. On Aug. 20, large cif NWE propane cargos were assessed at $556 a metric tonne, while cif NWE naphtha cargos were at $622.50 a tonne, placing the spread between the two at minus $66.50 a tonne, the smallest gap since Jan. 19 this year.

That tightening has also strengthened as naphtha has more closely tracked crude oil prices compared to propane, a market source said. “I think it is the propane and the naphtha detaching from one another in terms of crude.” Propane has remained relatively strong due to stock drawdowns in the U.S., while the strengthening of U.S. butane prices has also pushed exporters to revert back to propane, boosting prices for that product, the source explained. “Everyone is a bit nervous about stock levels [for LPG in the U.S.], and that has pushed LPG into a fairly bullish market.”

In the naphtha market, cracks have remained relatively flat since the beginning of August on balanced fundamentals, with cracks weakening only marginally on stronger crude oil futures, as the September cif NEW naphtha crack swap fell a nickel to minus $2.25/bbl at the close.

A balanced naphtha market has made the relative strengthening of propane against crude more pronounced, whereas physical naphtha values have tracked more closely the wider crude complex, even as gasoline blending margins have hardened on resurgent demand for naphtha as a blendstock component, observes S&P Global Platts.

The propane-naphtha gap, known as the pro-nap, is a measure of propane’s competitiveness against crudederived naphtha as an alternative feedstock for petrochemical buyers. The current strengthening began in late April after declining through much of the winter, a period when propane would typically be stronger than naphtha due to demand for propane as a consumer heating fuel.

The strengthening of propane versus naphtha throughout the summer is also unusual, as this is when propane would typically be at its most competitive. But even at current levels, propane remains affordable against naphtha as a feedstock for petrochemical buyers who can switch easily between feedstocks.

(SOURCE: The Weekly Propane Newsletter, September 4, 2018)