It Takes Two, Part 4 - Rising Export Demand Will Reduce U.S. Ethane Rejection and Goose Prices

For the past few years, demand for U.S.-sourced ethane has been on the rise as petrochemical companies in the U.S. and abroad developed new, ethane-only steam crackers and retrofitted existing crackers to allow more ethane to be used as feedstock. U.S. NGL production was increasing too, of course, alongside growth in crude oil-focused plays like the Permian and “wet” gas plays like the Marcellus/Utica. But recently, drilling-and-completion activity has slowed to a crawl and NGL production has been leveling off, which means that less of the ethane that comes out of the ground with oil and gas will be “rejected” into natural gas and more will be separated out at fractionation plants. Today, we conclude a series on ethane exports with a look at U.S. NGL production, ethane supply and demand, ethane exports, and ethane prices.

Among the many extraordinary results of the Shale Revolution is that the U.S. has emerged as by far the leading exporter of liquefied petroleum gases (LPG; propane and normal butane) and pretty much the only exporter of ethane. (Norway exports small volumes.) In fact, the U.S. now exports ethane to steam crackers in eight other countries: Canada, India, the UK, China, Norway, Mexico, Brazil, and Sweden. As we said in Part 1, the U.S. produced a record 2.2 MMb/d of ethane in July 2020, according to the Energy Information Administration (EIA), and we estimate that around a million additional barrels per day on average this year has been rejected into the natural gas stream at processing plants and sold (at the price of gas) for its Btu value (see Turnin’ Natgas into Gold). About 290 Mb/d, or 13% of total U.S. ethane production, is currently being sent to other countries, with about one-third of the exports being piped to Canada and the rest being shipped to other foreign lands. About 80% of the shipped volumes is being sent out of Enterprise Products Partner’s Morgan’s Point export terminal on the Houston Ship Channel and the balance sets sail from the Energy Transfer’s Marcus Hook facility near Philadelphia.

We described the Marcus Hook Industrial Complex (ethane export capacity, 70 Mb/d) and the Morgan’s Point Ethane and Ethylene Export Terminal (ethane export capacity, 200 Mb/d) in some detail in Part 2. We also discussed the long-term supply agreements that account for the vast majority of the ethane being exported. In Part 3, we turned our attention to the new, 180-Mb/d Orbit Ethane Export Terminal in Nederland, TX, which holds a long-term contract to supply as much as 150 Mb/d of ethane to two planned ethane-only steam crackers in China. Energy Transfer, which co-developed the Orbit terminal with Satellite Petrochemical, the U.S. subsidiary of a Chinese petrochemical company, also is seeking to line up customers for the 30 Mb/d of ethane-export capacity that is still available at Orbit.

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