After years in the doldrums, ethane prices are increasing, not so much in absolute terms, but where it counts — relative to the price of natural gas. That means less ethane will be rejected — sold as natural gas — and more will be recovered as liquid ethane and sold as a petrochemical plant feedstock. As still more new ethane-only petrochemical plants come online over the next couple of years, ethane demand will increase, boosting ethane prices and resulting in still less ethane rejection. Does that mean ethane rejection will be a thing of the past? No, not even close. U.S. natural gas production, especially gas with a high ethane content, is growing so fast that ethane supply will continue to outstrip demand for the foreseeable future, with important consequences for ethane prices. Today, we continue our review of NGL market developments.
Visualize the infrastructure behind U.S. NGL movement.
The U.S. NGLs Map provides a comprehensive view of the transport, processing, and export networks moving NGLs across the U.S.
The ethane market is a frequent topic here in the RBN blogosphere. A few weeks back in Bring It On - Part 1, we looked at the record-high level of U.S. ethane production — 1.6 MMb/d as of February 2018 — and our projection of continued growth in the coming months, to an average of 2.1 MMb/d during 2019. About 80% of that incremental supply will go to U.S. steam crackers, while 20% will be exported to Europe and Asia. In Part 2 of that blog series, we explored where that ethane will be coming from, considering the two basic market alternatives for each ethane molecule: (1) to be extracted as liquid ethane at a natural gas processing plant and transported to a steam cracker, or (2) to be rejected — that is, sold as natural gas at the tailgate of that gas processing plant. In that blog, we zeroed in on the big question: How far away the marginal ethane gallon needs to come from to satisfy ethane demand on the Gulf Coast, the location of 85% of U.S. ethane demand? As a general rule, the longer the distance, the higher the cost of that “last” ethane gallon necessary to meet demand. And remember, the cost of that last gallon is the primary determinant of the price of Gulf Coast ethane. The price must be high enough to offset the value of selling the ethane as gas at the tailgate of the plant, plus the cost of transporting and fractionating the ethane and delivering the marginal gallon to Mont Belvieu, TX, the pricing point and central hub for distributing most Gulf Coast ethane.
We’ll get back to this question in a moment, but first, an ethane price update. As shown in the left graph in Figure 1, the price of ethane crashed from 96 cnts/gal in 2011 to 22 cnts/gal in 2012, mostly due to oversupply of ethane from burgeoning volumes of “wet” shale gas. The crude oil price crash in 2014 only made matters worse, with prices bottoming out at 13 cnts/gal in December 2015. But since then, ethane prices have recovered, averaging about 25 cnts/gal since January 2017. The more important story is shown in the middle graph of Figure 1, with ethane selling at more than four times the price of natural gas on an MMBtu basis in 2012 but falling to equal the price of gas from 2013 to 2015 — getting as low as 0.6X the price of gas in December 2014. From that low point, for the most part the price of ethane has been on the rise relative to gas prices, particularly over the past year. As shown in the zoom-in graph to right, the ratio is up from about 1.2X gas in April 2017 to 1.4X today, getting to almost 1.6X earlier this month.
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About the song
"Whole Lotta Shakin' Goin' On" was written by Dave Williams and Roy Hall, a Nashville club owner and promoter who used the pseudonym of "Sunny David" for the song's copyright. It became a regional hit for blues shouter Big Maybelle on the Okeh label in 1955. Maybelle's version, which features the raunchier original lyrics, was produced by a very young Quincy Jones. Jerry Lee Lewis, already riding high on “Crazy Arms,” his first single for Memphis's Sun Records, went in and cut "Whole Lotta Shakin' Goin' On" with Roland Janes on guitar and J.M. Van Eaton on drums. The Jack Clement-produced single was released in April 1957 and went to #3 on the U.S. singles charts. It was the record that really shot Lewis to worldwide fame. His live performance of “Whole Lotta Shakin’ Goin’ On” on the Steve Allen Show in 1957 –– with Jerry Lee, his hair wildly askew, pounding the piano keys like a man possessed and kicking his piano chair across the stage (to have it jokingly thrown back by Steve Allen) –– certainly made an impression on the millions of TV viewers observing it in the comfort of their living rooms. There was a revolution happening in the music of America's youth, and it was called rock and roll.
Jerry Lee Lewis helped invent rock and roll piano, with his driving left-hand bass figures and the pounding chords and flourishes his right hand provided. He took the boogie woogie to a whole new realm. Couple that with his wild antics of playing standing up (sometimes on top of the piano), pounding the lid open and closed for effect, kicking piano benches and microphone stands across stages, and generally looking like a madman ... there was nothing like a Jerry Lee Lewis concert in the 1950s. Lewis was one of the first inductees to the Rock and Roll Hall of Fame in 1986. Now 82 years old, he is the last man standing of the rock and roll pioneers of Memphis's Sun Records.
