Ethane Ratio to Natural Gas Soars to 1.32X – Will it Reduce Rejection?

What’s the fastest-growing U.S. hydrocarbon? You guessed it — ethane. Since 2016, ethane production has grown at almost 2.5 times the rate of crude oil or natural gas and 1.5X that of other natural gas liquids (NGLs). And there’s a lot more upside potential where that came from. It’s entirely demand-pull, meaning that U.S. ethane production growth is being driven by increasing domestic and export demand for the petrochemical feedstock. Shell’s new steam cracker in Pennsylvania is online, CP Chem and Qatar Energy are planning a new cracker in Orange, TX, and other projects are in the works. On the exports front, both Enterprise and Energy Transfer announced export-terminal-expansion projects in 2022. All this new ethane demand needs supply, and fortunately the U.S. has the barrels, not only from ever-increasing NGL production, but also from ethane that today is being rejected and sold as natural gas. And the markets will need new pipes, fractionators, and ships to get that ethane to market. With today’s RBN blog, we begin a series to explore what these developments mean for U.S. ethane market players.

It looks like the U.S. ethane market may have just dodged a bullet. Since late May, the U.S. Bureau of Industry and Security effectively banned ethane exports to China, the destination for two-thirds of the ethane sent out of Gulf Coast docks — about 225 Mb/d in 2024. Ethane has become a bargaining chip in U.S.-China negotiations over rare earths and tariffs, in part because China has no alternative source of waterborne ethane feedstock for its petchems. But playing the ethane card presented a potential problem for the U.S. too. While China isn’t the only export market for U.S. ethane, there are very limited other destinations for the volumes they typically take. The need to find a home for those volumes could have required significantly more “rejection” of ethane into natural gas at U.S. gas processing plants — i.e., selling ethane for its fuel value instead of recovering it for petchems or export.  In today’s RBN blog, we examine the ethane export issue, which remains in flux as part of the broader U.S.-China trade agreement still being finalized.