Demand for ethane from U.S. steam crackers is rising as recently completed ethane-only crackers ramp up to full production and additional crackers are finished. To keep pace with demand growth, a portion of the ethane now being “rejected” into the natural gas stream and sold for its Btu value will instead need to be left in the mixed-NGLs stream and fractionated into purity-product ethane. This raises two questions. First, in which shale plays will this shift from ethane rejection to ethane production occur? And second, how much will ethane prices need to increase to encourage the shift and make the required incremental volumes of ethane available? Today, we continue a series on ethane-market developments with a look at where the next tranche of ethane supply will come from and how high ethane prices might need to rise.
A few weeks ago, in Dipping Low, we discussed the roller coaster that the always-interesting ethane market has been on the past couple of years. The rollicking ride began with sharply rising demand from new steam crackers, a fractionation-capacity crunch and soaring ethane prices. Then came an ethane demand slump, plummeting prices and a big jump in inventories. As we said in Part 1 of the two-part series we conclude today, in recent weeks the ethane market appears to have returned to a state of relative calm, with ethane prices settling in at about 20 cents/gal and ethane demand seemingly poised for a steady, predictable rise into and through 2020. The increasing demand comes as the new Shintech, Lotte Chemical/Westlake Chemical and Sasol steam crackers in Louisiana ratchet up toward full operation and as construction contractors put the finishing touches on Formosa Plastics’ new Point Comfort, TX, cracker and Dow’s cracker expansion project in Freeport, TX.
Canadian crude output is rising, requiring new export routes. As traditional pathways face constraints, the U.S. Rockies—especially the Guernsey, WY hub—are emerging as key corridors for moving Canadian heavy crude to downstream markets, including the Gulf Coast.
Assuming all of this happens on or close to schedule, RBN estimates that U.S. steam crackers as a group will require an additional 120 to 150 Mb/d of produced ethane going into 2020, and that another 30 Mb/d will be needed early next year as the Formosa and Dow plants reach full capacity and Indorama Ventures achieves stable operations at a long-idled steam cracker it has been restarting in Louisiana. In fact, the incremental supply the market will require is already out there. According to the latest data from the Energy Information Administration (EIA), 1.7 MMb/d of purity-product ethane was “produced” in July 2019 for eventual use in steam crackers (or exports), and RBN estimates that more than a million barrels a day of ethane was rejected into natural gas and sold for its Btu value. The primary reason that ethane is being rejected — and not being “recovered” or “produced” — by many gas processing plants is that, for them and the producers they serve, rejection is the more economically advantageous option. To paraphrase Shakespeare’s Hamlet:
To reject or not to reject, that is the question.
Whether ‘tis more profitable to put ethane in pipeline gas and sell it for its Btu value
or to leave it within the mixed-NGL stream, pipe it to Mont Belvieu or elsewhere
and have it be fractionated for use by Gulf Coast steam crackers or exported.
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About the song
"How High" was written by Madonna, Pontus Winnberg, Christian Karlsson and Henrik Jonback, and appears as the ninth cut on Madonna's 10th studio album, Confessions on a Dance Floor. It was produced by Madonna, Bloodshy & Avant and Stuart Price. Personnel on the track were: Madonna (lead and backing vocals), Stuart Price (keyboards, synthesizers, vocoders, programming, sequencing and sampling), Roberta Carraro (drums, bass, keyboards), Monte Pittman (guitar) and Mango Wallbert (programming).
Confessions on a Dance Floor was recorded at Mayfair Studios in London and Murlyn Studios in Stockholm, and was released in November 2005. The record is an electronic dance/disco album that is structured like a set put together by a DJ. It went to #1 on the Billboard Top 200 Albums and Top Dance/Electronic Albums charts. The LP has been certified Platinum by the Recording Industry Association of America, and has estimated sales of over 10 million worldwide.
Madonna (Madonna Louise Veronica Ciccone) is an American singer, songwriter, actress and businesswoman. She has released 14 studio albums, five live albums, six compilation albums, three soundtrack albums and 85 singles. She has sold more than 300 million records worldwide and is recognized by Guinness World Records as the best-selling female recording artist of all time. She has won three American Music Awards, 14 ASCAP Awards, 19 Billboard Awards, two Brit Awards, two Golden Globe Awards, seven Grammy Awards, two Ivor Novello Awards, 20 MTV Video Music Awards, and two World Music Awards. Madonna was inducted into the Rock and Roll Hall of Fame in 2008. She has starred or co-starred in 21 movies. She still records and tours and is currently on her Madame X world tour.
