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Ethane Asylum Revisited - New U.S. Cracker Demand, Exports Will Strain Ethane Supply

The last couple of years have been a wild ride for the U.S. ethane market, but look out ahead.  It’s going to get crazy. The onslaught of new, ethane-only crackers is upon us at the same time overseas exports are expected to ramp up. At first glance, it might appear there is enough ethane to meet all that demand, coming from molecules that today are being rejected — that is, sold as natural gas rather than liquid ethane. But the big question — will it be enough? Because not all that rejected ethane has access to pipeline capacity needed to get it to market, at least not right now. In today's blog, we begin a new series on rising ethane demand, how the new demand will be met, and what it all means for ethane prices.

Ethane is a unique market — it’s the only energy commodity that can morph from being sold as natural gas to being sold to petrochemical plants as a liquid feedstock. It is this chameleon-like attribute that contributes to ethane’s volatility, both in terms of production volume and pricing. Because of ethane’s unique niche (and our fondness for the product here in the RBN blogosphere), we’ve been posting lots of blogs on the topic for years, going back to the original Ethane Asylum that heralded the ramp-up in ethane rejection in the Shale Era. Then in Ethane: Boat on the Water!, we discussed the growing supply of ethane, falling prices and the challenges that had to be overcome for the first ship of U.S. ethane exports to set sail. That finally happened on March 9, 2016, when the first ethane cargo departed the Marcus Hook, PA terminal near Philadelphia. We examined ethane’s relationship to the price of natural gas, ethane rejection economics, and ethane’s competitiveness as a petrochemical feedstock in It’s Complicated. More recently, in Ain't Wastin' Time No More, we detailed Shell’s plans for a Beaver County, PA steam cracker and the regional supply and infrastructure necessary to support the cracker’s supply chain.  

Just in case you don’t stay glued to the ethane market on a regular basis, Figure 1 below will get you up to speed with what has been happening. The graphs in the left and center show production of ethane from natural gas processing plants, which account for 99.7% of all ethane production in the U.S. The leftmost graph shows the production trend over the past 10 years, up from an average of just over 0.7 million barrels per day (MMb/d) in 2007-09 to 1.3 MMb/d in the first four months of 2017. The center graph focuses on the past two-and-a-half years. Note that while production has been increasing, the volumes have been swinging wildly, spiking to 1.15 MMb/d in April 2015, falling back, spiking again to 1.25 MMb/d in November of that year, then repeating that cycle another three times to spike to 1.38 MMb/d in June 2016, 1.35 MMb/d in November 2016, then 1.39 MMb/d in March of this year. None of the other natural gas liquids (NGLs) — propane, normal butane, isobutane or natural gasoline — experienced this level of production volatility. As you’ve probably guessed, the culprit here is ethane rejection, or more accurately, the fluctuations in ethane rejection economics.

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