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'Til You Use Me Up - Ethane Recovery Must Increase to Meet Demand

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.   

When oil and gas are produced, the natural gas can come along with natural gas liquids (NGLs; see Carbon Rich Value High). Ethane is one component of the y-grade, or mixed NGL stream that is separated out from the raw gas stream at the U.S.’s 1,000 or so gas processing plants. But, as we detailed in our blog, One Thing Leads to Another, how much ethane there is in that y-grade can vary a lot depending on how much ethane is recovered, and how much is “rejected” into natural gas.

Ethane rejection is one of the main market mechanisms that determines the supply/demand balance for ethane. If ethane is worth more as gas at the processing plant, it is rejected from the plant’s recovered stream and sold as natural gas. If it is recovered, it moves to a petrochemical plant (steam cracker) or export facility somewhere. Most crackers and the largest ethane export facilities are located along the Gulf Coast. As a general rule, the farther away ethane is from the Gulf Coast, the more it will cost to get it there, and the more expensive that ethane will be.

Figure 1, below, shows our estimates of where ethane is being produced and how much is rejected in each region for the calendar year 2020.

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