It is a familiar refrain in the shale era. The U.S. produces more of a hydrocarbon commodity than it can use. This time we are talking ethane, a natural gas liquid that is experiencing production constraints mostly due to the inability of U.S. petrochemical plants to use more of the feedstock. So why not just export the surplus? Unlike crude oil there are no legal constraints on exports. Unlike natural gas, you don’t need a $10 billion plant to convert it to a liquid (LNG) – ethane is already a liquid. Unfortunately for many ethane wannabe exporters, ethane has its own infrastructure and market issues that must be resolved before it can be shipped overseas in significant quantities. Today we continue our blog series on the feasibility of overseas ethane exports.
In the first episode of Changes in Longitudes, we discussed the sharp rise in U.S. ethane production, the collapse of ethane prices in late 2012, and what those low prices have meant for the production of ethane from natural gas processing plants. First and foremost the result has been a lot of rejection – selling ethane at fuel value by leaving it in the residue natural gas stream rather than extracting the ethane molecules as a feedstock for the production of ethylene and other petrochemicals. We also talked about the new U.S. ethane-based cracking capacity being developed, mostly along the Gulf Coast, and about our view that the growing volume of ethane that could be produced from natural gas will far outpace the volume that could possibly be consumed by these new crackers. By our estimate, ethane rejection—that has recently been running at about 250 Mb/d, could nearly triple over the next three years, to more than 700 Mb/d in 2017.
School of Energy Online
The course materials include over ten hours of streaming video from the March 2014 School of Energy, Excel models discussed in the course, and accompanying slide decks in PDF format. More info. on School of Energy Online here.
It’s the next best thing to being there!
In addition, we pointed out that as of the past three months at least some ethane already is being exported --- eventually up to 50 Mb/d through the Mariner West pipeline from western Pennsylvania to Sarnia, ON, and up to 40 Mb/d via the Vantage Pipeline from Tioga, ND to Empress, AB. Finally, we noted the inaugural overseas export deals in place to move Utica/Marcellus-sourced ethane (from Range Resources and CONSOL Energy) through ETP Sunoco Logistics Partners’ (SXL) Mariner East pipeline to an SXL ethane-loading terminal on the Delaware River in Marcus Hook, PA, and from there to ship the ethane to petrochemical manufacturer INEOS in Northwest Europe.
While the INEOS deals are important because they will prove out the technical viability of overseas ethane exports, the volumes involved are a drop in the ethane oversupply bucket. For ethane exports to work in a big way, the parties to future deals will need to resolve four major barriers: (1) loading and unloading terminal infrastructure, (2) shipping, (3) pricing, and (4) petrochemical demand. In today’s blog we’ll cover the first two barriers, and wrap up with the final two barriers later this week.
Check out Kyle Cooper’s weekly view of natural gas markets at
Barrier #1 - Terminal Infrastructure
There is little or no trading of waterborne ethane today. In global markets it is primarily consumed in facilities adjacent to where it is produced. In the U.S. it is moved from fractionation facilities (see Can Mont Belvieu Handle the NGL Supply Surge?) to petrochemical plants via pipeline. The reason for these constraints on ethane transportation is that it is a difficult product to handle. Not as difficult as LNG (methane). But considerably more difficult than its NGL brethren, propane and butane.
Ethane boils off at a temperature of -127 degrees F. So to keep it liquid it either has to be chilled below that temperature or held under extreme pressure. For that reason 99.9% of U.S. ethane moves by pipelines that can handle that kind of pressure and is stored in underground salt caverns where large quantities can be held under pressure without the need to keep the product at near-cryogenic temperatures. Unfortunately, holding ethane under extreme pressure doesn’t work when ethane is stored above ground (where salt caverns are not available), nor when ethane is loaded and transported via ship. When stored above ground or on a ship the only economical way to hold liquid ethane is at near-cryogenic temperatures and near-atmospheric pressure. This is not rocket science. After all, petrochemicals like ethylene are stored and transported at near-cryogenic temperatures, and LNG is full-blown cryogenic (boils at -260 degrees F). The catch is that such near-cryogenic storage facilities for ethane don’t exist today. Chillers must be built that can handle ethane. Gulf Coast export facilities should have the advantage of nearby underground storage facilities, but we understand that above ground tankage will still be required at Marcus Hook, even though the site has underground mined-granite storage.
It is the same thing on the unloading side of the voyage. The ethane will have to be unloaded into tanks that can be maintained at the same near-cryogenic temperatures. INEOS is already developing a couple of these tanks. A 17,000 metric ton (300 MBbl) ethane tank is under construction at their Rafnes, Norway plant that would bring total storage capacity at the facility up to about 30,000 tons (530 MBbl). The new tank is scheduled for completion in Q2 2015. INEOS already had some ethane storage at the site because they had run some North Sea ethane at Rafnes before. They are building another 33,000 metric ton (580 MBbl) tank at their Grangemouth, Scotland site which is scheduled to be completed in Q2 2016. We don’t have any cost numbers on these tanks, but we think a reasonable guess for the Grangemouth tank would be in the $50+ million range.
The other big cost at the loading end is the chiller that reduces the ethane temperature from ambient levels down to -127 degrees F or so. The process is similar to LNG liquefaction, in that the plant drops the product down through multiple stages of cooling using some kind of liquid as a refrigerant (like ethylene, for example). Although the chiller is not in the multi-billion dollar range like an LNG liquefaction plant, the cost can still be in the $100-150+ million range, depending on the size of the plant and the availability of nearby support infrastructure. The bottom line is that there is a lot of cost associated with the loading and unloading of ethane for overseas shipment.
To access the remainder of Changes in Longitudes — The Four Barriers to Ethane Exports you must be logged as a RBN Backstage Pass™ subscriber.
Full access to the RBN Energy blog archive which includes any posting more than 5 days old is available only to RBN Backstage Pass™ subscribers. In addition to blog archive access, RBN Backstage Pass™ resources include Drill-Down Reports, Spotlight Reports, Spotcheck Indicators, Market Fundamentals Webcasts, Get-Togethers and more. If you have already purchased a subscription, be sure you are logged in For additional help or information, contact us at [email protected] or 888-613-8874.