It’s a well-known fact in the energy and petchem industries that ethane is either “rejected” into natural gas or used as a feedstock for steam crackers. But piping ethane to NGL hubs, crackers, or export docks only makes sense if it’s economically viable or if there’s no other alternative, and ethane rejection has its limits — ethane has a 70% higher Btu value than methane, and too much rejection can make pipeline gas “too hot” for downstream consumers. Well, there’s another way to make economic use of ethane: burn it — typically in a blend with natural gas — to generate electric power. Burning ethane for power is super-rare though, and only happens in places where the lightest of all NGLs is so abundant that folks don’t know what to do with it. The Marcellus/Utica region in Appalachia for one, and now — just maybe — the Bakken Shale in western North Dakota. Today, we discuss plans for what would be only the second major U.S. power plant to be fueled by a blend of natural gas and ethane.
After several years of development, Shell’s $6 billion Pennsylvania Petrochemicals Complex — the first of its kind in the Marcellus/Utica shale play — is really taking shape about 30 miles northwest of Pittsburgh. The facility, which will consist of a 3.3-billion-lb/year ethylene plant and three polyethylene units, is in its final stages of construction, as is a pipeline that will supply regionally sourced ethane to the steam cracker. When the Falcon Pipeline and the PPC comes online, possibly as soon as 2022, they will provide a new and important outlet for the vast amounts of ethane that is now either “rejected” into natural gas for its Btu value or piped to Canada, the Gulf Coast, or the Marcus Hook export terminal near Philadelphia. Today, we discuss progress on the Marcellus/Utica’s first world-class petrochemical complex and what it will mean for the play’s NGL market.
How about some good news to start the year? Over the past few weeks, ethylene margins have blasted into the stratosphere. These are good times for steam crackers, those petrochemical plants that use mostly NGL feedstocks to produce ethylene and other building-block chemicals. As you might expect, this newfound prosperity has a lot to do with ethylene’s price. In December alone, the price of ethylene was up 50%; versus April it’s up a whopping 4X, coming in yesterday at 37.5 cents per pound (c/lb). There are a whole range of factors responsible, including petchem outages due to the hurricanes, new downstream derivative units coming online, robust exports from the Enterprise Morgan’s Point dock, and, oh yes, strong demand for downstream products — everything from food packaging to construction materials. Is the spike in ethylene prices going to last? And what does it mean for NGLs, which account for more than 95% of the feedstock supply for U.S. ethylene. We’ll explore those questions and more in this blog series we begin today.
Welcome to 2021! We finally have that train wreck of a year 2020 behind us, and it’s time to look forward. At RBN, we have a long-standing tradition of doing just that in our annual Top 10 Energy Prognostications, where we lay out our expectations for the most important developments for the coming year. But how is that possible amid the chaotic market conditions still ahead? So much has changed, so many market factors have been disrupted, and so few guideposts remain unscathed, there is just no way to predict what is going to happen next, right? Nah. All we need to do is stick out our collective RBN necks one more time, peer into our crystal ball, and see what 2021 has in store.
Petrochemicals form the backbone of modern consumer society. They provide the plastics and other materials needed to make most of the products we depend on, everything from computers and cellphones to car tires and fertilizer — not to mention N95 masks and other personal protective equipment. Petrochemicals come from crude oil, natural gas, and/or NGLs like ethane and propane, of course, and a good way for an energy-producing area to add value to its raw hydrocarbons is to develop petchem plants nearby. Alberta, Canada’s leading energy-producing province, is making a new push to encourage such projects. Today, we discuss the latest provincial program and what it hopes to accomplish.
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.
The U.S. is by far the world’s largest ethane producer, and exports one-seventh of what it produces, with most of the exported volumes tied to long-term contracts to supply ethane-consuming steam crackers. Canada is the #1 importer of U.S. ethane, receiving its volumes via three pipelines. As for U.S. exports by ship, India is on top, followed by the UK and Norway. But watch out! China, which started importing U.S. ethane a year or so ago, is poised to buy a heck of lot more, with most of the incremental volumes to be shipped out of a new ethane export terminal about to come online in Nederland, TX. Today, we continue our series with a look at the Orbit Ethane Export Terminal, which is being jointly developed by Energy Transfer and Satellite Petrochemical, the U.S. subsidiary of a Chinese petrochemical company.
Taken together, the ethane-related infrastructure projects developed in the U.S. over the past several years serve as a reliable feedstock-delivery network for a number of steam crackers in Europe, Asia, and Latin America. NGL pipelines transport y-grade to fractionation hubs, fractionators split the mixed NGLs into ethane and other “purity” products, ethane pipelines move the feedstock to export terminals fitted with the special storage and loading facilities that ethane requires, and a class of cryogenic ships — Very Large Ethane Carriers, or VLECs — sails ethane to mostly long-term customers in distant lands. The end results of all this development are virtual ethane pipelines between, say, the Marcellus/Utica and Scotland, or the Permian and India. Today, we continue our series on ethane exports with a look at the two existing export terminals, the ethane volumes they have been handling, and where all that ethane has been headed.
The run-up in U.S. production of natural gas liquids over the past 10 years spurred the development of a whole lot of infrastructure. More pipelines to transport mixed NGLs from production areas to NGL storage and fractionation hubs, especially Mont Belvieu, TX. More fractionators to split y-grade into ethane, propane, and other “purity” products. And, specifically for ethane — the lightest, quirkiest, and most plentiful NGL — a number of ethane-only steam crackers were built along the Gulf Coast to take advantage of the new supply abundance, as were ethane-only pipelines, export terminals, and a whole new class of cryogenic ships — Very Large Ethane Carriers, or VLECs — to move the product to markets in Europe and Asia. Today, we begin a new series on the unique nature of overseas ethane exports, including why most incremental export volumes are tied to long-term supply deals with a handful of global ethylene plants designed — or reconfigured — to “crack” ethane.
The South Texas NGL market has always been a world of its own, a self-contained liquids ecosystem running from Brownsville to Markham, a distant 200 miles from the NGL epicenter at Mont Belvieu. In recent years, however, the South Texas market has been undergoing radical change, first with the emergence of the Eagle Ford basin, then with the onslaught of Permian production and, most recently, with the aptly named EPIC NGL Pipeline and new fractionation capacity in greater Corpus Christi. More supply and demand are on the way, with new pipes, exports, and the largest ethane-only petrochemical plant in the world under construction. And with these developments, a strategy by several large, well-financed players has emerged – to develop an NGL storage and fractionation hub competitive with Month Belvieu. Today, we begin a series to examine the South Texas NGL market and how changes there will impact flows, utilization, and pricing across North America and beyond.
In their second-quarter earnings presentation last week, Energy Transfer said that they and their joint venture (JV) partners, Satellite Petrochemical, expect the first commissioning cargoes from their new 180-Mb/d ethane export facility in Nederland, TX — formally known as Orbit Gulf Coast NGL Exports LLC — to begin in November, only three months from now. This new outlet for U.S.-sourced ethane comes at a time when production of oil, gas, and NGLs faces near-term declines due to reduced drilling activity resulting from low crude prices. With those declines, will there be enough ethane supply to meet the capacity of the new Orbit export dock and other upcoming ethane-related projects? The short answer is, yes … for the right price. Today, we examine the latest supply and demand dynamics shaping the U.S. ethane market.
Over the past five years, the production of natural gas liquids from gas processing plants has soared by almost 2 million barrels per day (2 MMb/d), or about 60%. That has been great news for natural gas producers, processors, and end-use markets. But there is a catch: the rate of production does not match up with demand. While production is a steady, “ratable” volume, demand is anything but ratable. Demand swings with the gasoline blending season, cold weather (or lack thereof) in the propane market, export demand, petchem feedstock economics, the impact of COVID-19 on transportation fuels, and a myriad of other factors. The flywheel that balances supply and demand on any given day is storage. Not just any storage, though. For NGLs, storage of large volumes means salt caverns. Huge caverns thousands of feet below the surface. Today, we update one of RBN’s Greatest Hits blogs and take a deep dive into the history of NGL storage — all the way back to Smoky Billue.
There is no such thing as a typical NGL barrel. For example, the composition of y-grade production out of the Marcellus is significantly different from y-grade out of most of the Permian. And it is not just gas processing engineers who care. The make-up of an NGL barrel is inextricably linked to the value of that barrel. The reason is pretty simple: there’s a big difference in the value of each of the five NGL products. These days, natural gasoline is worth nearly eight times as much per gallon as ethane. Normal butane is worth 1.6X as much as propane. Consequently, the more natural gasoline and normal butane in your barrel versus the amounts of ethane and propane, the more the barrel is worth. So it’s important to anyone trying to follow the value added by gas processing and related infrastructure to understand where these numbers come from and how much the composition of a barrel can vary from basin to basin, or for that matter, from well to well. In Part 2 of our series on gas processing, we turn our attention to the variability in the mix of NGL production and its implication for processing uplift.
OK, we admit it. Our title may be a bit of an overstatement in early 2020, but it was absolutely true back in 2012, when the frac spread was $13/MMBtu. These days, the frac spread — the differential between the price of natural gas and the weighted average price of a typical barrel of NGLs on a dollars-per-Btu basis — is only $2.48/MMBtu as of yesterday. But with Henry Hub natural gas prices in the doghouse — they closed on February 11 at $1.79/MMBtu — getting $4.27/MMBtu for the NGLs extracted from that gas, or an uplift of 2.4x, is still a pretty darned good deal. And that’s Henry Hub. Natural gas prices are lower in all of the producing basins, and are likely headed back below zero in the Permian this summer. So even with NGL prices averaging 30% lower than last year, the value of NGLs relative to gas can be a big contributor to a producer’s bottom line — assuming, of course, that the producer has the contractual right to keep that uplift. Today, we begin a blog series to examine the value created by extracting NGLs from wellhead gas, including processing costs, transportation, fractionation, ethane rejection, margins, netbacks and the myriad of factors that make NGL markets tick. We will start with the frac spread — what it tells us in its simplest form, how we can improve the calculations so it can tell us more, and, just as important, the economic factors that the frac spread excludes.
For a few years now, the Shale Revolution has been opening up development opportunities hardly anyone would have thought possible in the Pre-Shale Era. For example, new crude oil, natural gas and NGL pipelines from the Permian to the Gulf Coast, lots of new fractionators and steam crackers, as well as export terminals for crude, LNG, LPG, ethane and, most recently, ethylene. And here’s another. Thanks to the combination of NGL production growth and new ethylene supply — plus increasing demand for alkylate, an octane-boosting gasoline blendstock — the developer of a novel ethylene-to-alkylate project along the Houston Ship Channel has reached a Final Investment Decision (FID). Today, we discuss how the FID is driven by both supply-side and demand-side trends in the NGL and fuels markets.