Ethane Prices

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.

That crazy little ethane molecule is at it again. Yesterday the price blasted to 67.875 c/gal, a level last seen on January 17, 2012. Petchem cracker margins are low. Production is up, but inventories are down. A big driver of the bedlam is the price of natural gas, trading in the $7-$9/MMBtu range for the past month. But as usual with ethane, there’s a lot more happening below the surface — including high domestic demand, growing export volumes, and significant developments in downstream petrochemical markets — all shaking things up. Looking ahead, uncertainty looms, with more export capacity, ever-changing ethane rejection economics, and uneven production growth. In today’s RBN blog, we’ll leap back into the ethane market to see what’s been going on, and where ethane is headed over the next few years.

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.

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.

The U.S. ethane market has experienced major ups and downs in the past couple of years. First, there was 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. More recently, though, the market seems to have returned to a state of relative equilibrium. Ethane prices have settled in — at least for now — at about 22 cents/gallon (gal), a couple of pennies below where they had been standing rock-steady before all hell broke loose. Ethane demand from existing steam crackers is rising again, and new cracker capacity is coming online. The questions now are, with demand on the upswing, will ethane prices be rising too — and, if so, by how much? And what does that mean for steam cracker economics? Today, we discuss recent developments in the ethane market and explain why there’s good reason to believe that ethane prices won’t be spiking anytime soon.

The ethane market isn’t for the faint at heart — it’s got lots of ups and downs, and it’s impacted by an unusually wide range of variables. A year ago this month, a combination of fractionation constraints in Mont Belvieu and rising demand from new ethane-only steam crackers sent ethane prices north of 60 cents/gallon. For most of the time since then, though, ethane prices were in something close to freefall, bottoming out at only 10 cents in late July before rebounding in recent weeks to 20 cents or so. During the big, months-long price decline, ethane traders and cracker operators did what anyone does when they can buy something they’ll need in the future for next to nothing — they stocked up. Today, we examine recent trends in ethane supply, demand, prices and storage levels, and take a look ahead.

After years in the doldrums, ethane prices are increasing, not so much in absolute terms, but where it counts — relative to the price of natural gas. That means less ethane will be rejected — sold as natural gas — and more will be recovered as liquid ethane and sold as a petrochemical plant feedstock. As still more new ethane-only petrochemical plants come online over the next couple of years, ethane demand will increase, boosting ethane prices and resulting in still less ethane rejection. Does that mean ethane rejection will be a thing of the past? No, not even close. U.S. natural gas production, especially gas with a high ethane content, is growing so fast that ethane supply will continue to outstrip demand for the foreseeable future, with important consequences for ethane prices. Today, we continue our review of NGL market developments.

Massive infrastructure investments in petrochemical steam crackers and export terminals for propane, butane and ethane are in the works.  But the market has changed since the investment decisions for many of these facilities were made.  Instead of the low ethane prices the petrochemical market is enjoying today (about 19 cents/Gal), prices could ramp up to 50 cents/Gal by 2020 as new steam crackers and ethane export facilities come online.  If ethane prices increase and crude oil prices remain below $65/bbl, the feedstock cost advantage of ethane versus naphtha that the new petrochemical facilities expected likely would not materialize.  Lower crude oil prices would also cap production growth of all NGLs, limiting the volumes to be exported through the new terminals.  Today we review Part 2 of our Drill Down Report on NGL Infrastructure.