In just over a month, the price of Mont Belvieu purity ethane doubled, from 19 c/gal to 39 c/gal on Friday. Sure, the price of natural gas was up about 15% over the same period. But that increase was nowhere near ethane’s, so it was certainly not the price of gas that was making ethane take off. In fact, with ethane rocketing into space and gas prices still in the dumper, the ethane-to-gas ratio — a key measure of the value of ethane — skyrocketed, soaring from 1.2X in mid-June to 2.2X on Friday. A ratio at this level has only happened twice before in the past decade: once in 2018 due to a collision between fractionation capacity and new petchem plants coming online, and then again in 2020 during the COVID petchem demand surge. But the most recent price surge didn’t last long. On Tuesday ethane came back to earth, crashing 22% in a single day, and the ethane-to-gas ratio deflated down to 1.6X. So what’s happening? There are a lot of conspiracy theories out there that we won’t repeat here. Instead, in today’s RBN blog, we’ll lay out what we think are the most likely contributing factors behind this wild ride.
For those who are not steeped in NGLs and petchem feedstocks, we’ll start with a brief ethane market overview. Feel free to skip this if you are an ethane aficionado. Ethane is one of the five NGL “purity products.” It is the lightest of those products, and the most prolific of the NGL siblings, accounting for somewhere around 50% of each barrel of potential NGL production on a national basis, with the percentage varying by basin and within basins. Around 99.9% of the ethane “recovered” is transported by pipeline to a petrochemical plant — more specifically a steam cracker, where it is used as a feedstock to produce ethylene, propylene and other petchems. Note that we underlined “potential” a couple of sentences back, because the ethane recovered at natural gas processing plants is not all the ethane that is in the inlet natural gas stream. Instead of being recovered, some of the ethane is “rejected” into natural gas and sold for its Btu value. In other words, it’s sold at the tailgate of the plant as natural gas at the price of natural gas.
It is this either/or attribute for ethane marketability that makes the product a favorite of ours in the RBN blogosphere. Our greatest hits over the years include Ethane Asylum and Where Has All the Ethane Gone, both of which looked at high rejection volumes; Ethane Asylum Revisited, where we considered the impact of a dozen new ethane-only domestic crackers coming online in the 2017-22 period, along with more export capacity; Reason to Believe, which looked at the Gulf Coast Growth Ventures (ExxonMobil-SABIC) cracker near Corpus Christi; and It Takes Two, which examined the link between ethane export-capacity development and long-term commitments from foreign ethylene producers to receive ethane from U.S. suppliers.
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