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Some U.S. ethanol producers reduce production to sell natural gas for a profit

February 19/2021

MOSCOW (MRC) -- Sky-high U.S. natural gas prices have prompted some Midwestern ethanol producers to reduce processing in the last week, hoping instead to sell off some of their natural gas to take advantage of current high spot prices caused by the spike in cold weather, said Hydrocarbonprocessing.

Ethanol margins in the Corn Belt have dropped sharply due to the frigid weather, falling to negative-USD3.92 a gallon, lowest since at least 2010, Refinitiv Eikon data showed. Natural gas prices have soared because of power needs, hitting their highest levels in years due to the cold snap.

At the Waha hub in the Permian basin in Texas, next-day gas prices rose last week to as high as USD157.714 per million British thermal units (mmBtu).

The astronomical prices forced some ethanol producers who have not yet purchased all their needed natural gas to consider whether to reduce processing to avoid the high prices. It has forced others who have their natural gas bought to consider whether to reduce production rates to sell into the spot market. One ethanol producer reduced his companys run rate by more than 25% last week to sell natural gas that he earlier had bought at a contracted price.

He calculated that his typical cost for gas used to produce ethanol comes to just over $30,000 per day in the spot market. But the surge in prices means that cost would amount to $2 million if he were buying gas daily. As a result, this producer said, he had to try to sell off his natural gas, cutting ethanol production in the process.

The price is so ridiculous that I cant do anything else that makes that kind of money, said the producer, who wished to remain anonymous for market purpose.

As per MRC, a winter storm has brought unusually cold temperatures, snow, and freezing rain to Texas and western Louisiana, forcing a large share of US light olefins production offline. As of the evening of Tuesday, 16 February, IHS Markit had confirmed the shutdown of at least 61% of US ethylene capacity, 59% of US chemical- and polymer-grade propylene (CGP, PGP) capacity, and 22% of US fluid catalytic cracking (FCC) capacity. Many plants that remained online were running at reduced capacity.

Ethylene and propylene are feedstocks for producing polyethylene (PE) and polypropylene (PP).

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 2,220,640 tonnes in 2020, up by 2% year on year. Only shipments of low density polyethylene (LDPE) and high density polyethylene (HDPE) increased. At the same time, polypropylene (PP) shipments to the Russian market reached 1 240,000 tonnes in 2020 (calculated using the formula: production, minus exports, plus imports, excluding producers' inventories as of 1 January, 2020). Supply of exclusively PP random copolymer increased.
Author:Anna Larionova
Tags:petroleum products, PP, PE, neftegaz, petrochemistry, USA.
Category:General News
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