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Can't Get There from Here - Prospects for Ethane Production and Transportation from the Marcellus/Utica

Available ethane in the Marcellus/Utica is expected to increase 70% by 2022 to 800 Mb/d, from about 470 Mb/d this year. That should be good news for the slew of ethane-only steam crackers coming online in that time frame, primarily along the Gulf Coast. But unfortunately, there is limited ethane pipeline takeaway capacity out of the region and today more than half of the potential ethane supply is being rejected into the natural gas pipeline stream. Without additional takeaway capacity, that rejected volume is expected to grow and few additional ethane barrels will make their way to the Gulf Coast. The question is, will transportation economics support additional pipeline development to where the demand is growing the most? Today, we will explore how the changing ethane market is likely to impact the Marcellus/Utica producing region.

This is Part 4 of a series in which we look forward based on RBN’s most recent forecasts of ethane supply and demand. In Part 1, we began with a discussion of how the ratio of Mont Belvieu ethane prices to the Henry Hub natural gas price on a per-Btu basis influences the decision of whether to extract ethane or reject it and send it into the natural gas stream. As we noted, that’s one of the most important market factors for understanding how the current ethane market transformation will unfold. The higher the ratio of ethane to natural gas prices/Btu, the greater the volume of ethane that is recovered as a liquid feedstock for the petrochemical industry. This year, that ratio has shifted to 1.4:1, up from 1:1 last year. As a result, ethane production is up about 90 Mb/d in 2017 year-to-date from the 2016 average.

Next, in Part 2, we turned our focus to the five-year outlook for ethane demand and looked at what is happening on the demand side of the ethane equation, including the timing of new steam-cracker startups, how much additional ethane they will use, the pace of ethane export growth, and the trends in the cents-per-pound margin for producing ethylene from ethane.

Part 3 delved into the factors that will determine how much supply will be available for the growing demand and the economics of how it will get to where most of the demand is located — along the Gulf Coast. Since there are major differences between supply regions when it comes to gas processing infrastructure, access to nearby fractionation capacity, and takeaway capacity, among other factors, we first split U.S. ethane production into five major regions, shown in Figure 1 below: (1) Texas/New Mexico/Louisiana, (2) Midcontinent, (3) Rockies, (4) Williston/Bakken and (5) Marcellus/Utica. 

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