Keep on Keepin' On - Fractionation Constraints Limit Ethane Supply as Demand Rises

There’s never a dull moment in the ethane market. Four new steam crackers and an expansion at an existing plant are slated to begin operating along the Gulf Coast in 2019, and a recently restarted Louisiana cracker will continue to ramp up to full capacity — together adding about 250 Mb/d of ethane demand by year’s end. You’d think there would be plenty of ethane out there for them. After all, U.S. NGL production has been on the rise, driven in part by new Permian gas processing plants and new NGL pipeline capacity to the coast. But fractionation constraints at the Mont Belvieu hub are likely to linger through 2019, raising questions about how much ethane will actually be produced and how much will need to be rejected into pipeline gas. Today, we consider the challenges facing the ethane market this year as demand increases and fracs run flat out to keep pace.

The Shale Revolution has had many effects on the U.S. economy, one of the most significant being the revival of the domestic petrochemical industry. When it became clear a few years ago that production of natural gas liquids (NGLs) would be taking off — and high production volumes could be sustained for decades — a number of petchem companies committed to building new ethylene plants (a.k.a. steam crackers), most of them along the Gulf Coast and focused on cracking the lightest and most abundant NGL purity product of them all: ethane. As we’ve noted in almost every blog about ethane, it’s the chameleon of the NGL world — only ethane can either be rejected into natural gas for its Btu value or fractionated into pure ethane for cracking at ethylene plants. As we’ve also said, ethane’s unique versatility contributes to its volatility — both in terms of production volume and pricing — which makes it particularly challenging (and, for us, fun) to track.

About a year and a half ago, in our Ethane Asylum Revisited blog series, we said that while 2015 through mid-2017 had been a wild period for the U.S. ethane market, things were about to get really crazy. A slew of new, ethane-only crackers were going to start coming online in Texas and Louisiana and — at the same time — exports of ethane (by pipe and by ship) were going to ramp up. In other words, a lot of incremental ethane demand was about to be added within a relatively short period of time, putting still more pressure on what would soon be a very stressed fractionation sector.

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