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.
We’ve talked a lot over the past month about the possibility and challenges associated with waterborne ethane exports in Changes in Longitudes—Ethane Exports to Europe, Changes in Longitudes — The Four Barriers to Ethane Exports, and Changes in Longitudes — More Barriers to Ethane Exports.
We’ve also talked in great depth about the growing volumes of NGL production, including ethane, as a result of the shale gas revolution in The Future’s So Bright I’ve Gotta Wear Shades – Crude, NGLs and Natural Gas Outlook, and the growing length in the domestic ethane market in The Gas is Hot Tonight – Spiking Ethane into LNG Exports.
As you may recall from several of these previous blogs, ethane moves into one of two markets: 1) the petrochemical market as a feedstock for the production of ethylene, and 2) the fuels market as a component of natural gas. Ethane competes with the other NGLs – propane, normal butane and natural gasoline as a feedstock into the petrochemical sector. For more on the economics behind how these products compete for space in the petrochem sector see Beyond Hypothermia and Extreme Propane Price Spikes – Petrochemical Feedstock Switching 2013-14.
As the oversupply of U.S. ethane has grown over the past few years, the price for ethane at the major supply hub at Mont Belvieu, TX has declined from 77 c/gal in 2011 to averaging 26 c/gal in 2013. Lower prices have made ethane a more attractive feedstock into the petrochemical industry. Consequently, the use of ethane as a petrochemical feedstock has risen from an average of about 940 Mb/d in 2011 to over one million barrels per day since October 2013. This is shown in the leftmost graph in Figure #1 below. Ethane’s gain has been mostly at the expense of propane’s use as a feedstock, shown in the middle graph of Figure #1, down from more than 500 Mb/d to about 325 Mb/d recently. Feedstock cracker runs for normal butane, naphtha and gas oil are shown in the rightmost graph.