feedstock

It’s been about a year and a half since Next Wave Energy Partners opened its Project Traveler facility, a milestone in the energy industry. Overall, Project Traveler has exceeded production expectations and proven the innovative approach of combining ethylene and isobutane to produce high-quality alkylate. In today’s RBN blog, we’ll look at what’s been accomplished so far and dive into what’s ahead for Next Wave. 

Prices for CME/NYMEX West Texas Intermediate (WTI) have been on a rollercoaster this week – falling under $30/Bbl one minute then jumping back over $32/Bbl the next. Yesterday (February 4, 2016) WTI closed down 56 Cents at $31.72/Bbl. CME Henry Hub natural gas futures fell back under $2/MMBtu to close at $1.972 yesterday. That left the crude-to-gas ratio (WTI divided by Henry Hub) at just over 16 X – a little higher than the 15 X range we’ve been seeing this year. That is nearly half as much again as the 27X average between 2009 and 2014. The futures market implies that low ratios could continue for years – with December 2024 values implying a ratio of 13.3 X. The potential consequences of these low ratios are dramatic for the natural gas liquids (NGL) business as well as the competitiveness of U.S. natural gas in international markets.  Today we describe the implications.

Ethane has been in the doghouse for years since the shale gas boom kicked in, with production greatly exceeding demand and hundreds of thousands of barrels per day being “rejected” into the natural gas stream – owing to the fact that netbacks for liquid ethane are lower than pipeline natural gas. One way to understand that relationship is to track the price ratio of ethane at Mont Belvieu, TX to natural gas at Henry Hub, compared on a BTU basis.  That ratio of ethane-to-gas languished at 95% between Q1 2014 through the summer of this year, and in November 2014 dipped to only 61%.  That means that the BTU value of ethane at that point was only 61% of natural gas. Ethane that cheap is an awesome value for steam crackers using the feedstock to produce ethylene and other petrochemicals.  But a couple of months ago (September 2015), the price of ethane started to ramp up relative to gas, blasting through 140% in late October.  Is that bad news for future ethane prices? What does that portend for ethane once all the new steam crackers being built come online and overseas exports – also coming soon -- ramp up.  Today we look at the recent rebound in the ratio of ethane to natural gas and consider whether this is a signal that ethane is out of the doghouse.

A proposed BASF plant in Freeport, TX - that would make propylene from natural gas – is expected to be the subject of a final investment decision in 2016. If the plant is built it will have a similar purpose to another 6 Gulf Coast plants being built or planned in the next few years to make propylene from propane. All these plants are designed to make up for lower propylene output from U.S. petrochemical steam crackers using ethane, which yields less propylene from the cracking process. Today we discuss why using natural gas as a feedstock instead of propane might make sense.

If it persists, the oil price crash may have undermined many of the assumptions behind massive infrastructure investments in steam cracker plants and export facilities for natural gas liquids (NGLs). These projects expected to take advantage of booming domestic NGL production and low NGL prices relative to crude. Yet take-or-pay commitments and committed investment in plant infrastructure means they may be exposed to  poor returns if crude prices remain low. Today we detail analysis in the latest RBN Energy Drill Down Report to develop NGL supply, demand and pricing scenarios.

Over the past 4 years, billions of dollars have been committed to building new petrochemical olefin crackers for ethane and export facilities for both propane and ethane. All these projects were expected to take advantage of booming domestic natural gas liquids (NGL) production. Projected returns on these investments were based on the assumption that global crude oil prices would remain high relative to domestic NGLs – providing competitive margins for U.S. petrochemical plants and attractive arbitrage opportunities in export markets.  The oil price crash in the latter half of 2014 has undermined that assumption and now threatens the economics of many of these projects. Today we preview the latest RBN Energy Drill Down Report addressing the consequences for NGL infrastructure of lower crude prices.

Vacuum gas oil or VGO is one of those mystery products talked about by refiners but barely understood by those of us that are not engineers. However it is an important intermediate feedstock that can increase the output of valuable diesel and gasoline from refineries. Lighter shale crudes such as Eagle Ford can produce VGO material direct from primary distillation. Today we shed some light on this semi-finished refinery product.

Last week we covered what seemed like an onslaught of U.S. ethane export developments – Enterprise’s plans to build an ethane export facility on the Gulf Coast, INEOS’s agreement to take a portion of that facility’s capacity, INEOS’s expansion of its order for more ethane ships, and still more ethane ships ordered by Navigator Gas. What does all of this mean for the U.S. ethane market?  Could 240 Mb/d of ethane export capacity due to begin operations in Q3 2016 shift the future of the entire U.S. ethane market?  In today’s blog we assess the impact of large scale exports on the market for U.S. ethane.

Finding profitable markets for the rapidly increasing volumes of condensates produced in the Eagle Ford and other U.S. shale plays will be challenging. Sure there will be a growing Canadian need for condensates as a diluent for oil sands-derived bitumen, but that will still leave U.S condensate producers with a big surplus. The logical thing would be to look further afield, but selling to overseas markets— particularly to the growing Asia/Pacific region—is a complicated matter. First, an export license for “raw” (unprocessed) condensate to overseas markets is required, but no such licenses are being issued. Second, the Asia/Pacific region is also experiencing supply growth.

By Al Troner, President Asia Pacific Energy Consulting (APEC)

Historically U.S. condensate production has been in the backwater of crude markets, dumped into local crude flows or more recently exported to Canada for use as heavy crude diluent.  In stark contrast, the separation and processing of condensates in East of Suez markets is a major downstream activity, accounting for much of the Mideast Gulf’s naphtha exports and Asia’s feedstock supply.  As U.S. condensate production increases, it is clear that new markets will be needed for the volumes – with suppliers eyeing those robust East of Suez destinations. Today we continue our blog series on international condensates examining splitter/processing capacity in the Middle East and Asia Pacific regions.