U.S. and global ethane demand continues to grow, making it an increasingly important component of U.S. petroleum balances
This Week in Petroleum
https://www.eia.gov/petroleum/weekly/September 26, 2018
U.S. and global ethane demand is increasing because of expanding capacity in the petrochemical sector both domestically and abroad. Ethane is a hydrocarbon produced primarily by processing natural gas and is a petrochemical feedstock. This increase in demand has contributed to increased U.S. ethane prices, which have been 95% higher in September 2018 than in January 2018.
Ethane competes with refinery-produced, crude-oil-sourced naphtha as a petrochemical feedstock, both in the United States and internationally through U.S. ethane exports. Ethane is separated from natural gas; however, once it is extracted, the U.S. Energy Information Administration (EIA) includes ethane in its crude oil and petroleum product supply and disposition balances. As a result of growing supply and demand, accounting for the growth in ethane supply and disposition is becoming an increasingly important factor in liquid fuels balances.
Ethane is a hydrocarbon gas liquid (HGL) and one of several natural gas plant liquids (NGPL) found in raw natural gas. Although heavier NGPL such as propane, normal butane, isobutane, and natural gasoline must be removed from raw natural gas before being put into interstate pipelines, some ethane can be left in pipeline-quality natural gas (a practice known as ethane rejection). The incentives to reject ethane, leaving it in natural gas, follow the ethane-to-natural gas price differential, so when ethane prices are significantly higher than natural gas prices (on an energy-equivalent basis), producers achieve greater revenue by extracting and selling ethane separately rather than leaving it in the natural gas stream.
With ethane demand now increasing, ethane spot prices at Mont Belvieu, Texas, averaged 52.6 cents per gallon, or $7.16 per million British thermal units (MMBtu) on a heating-value equivalent basis, from September 1–21, 2018, which was $4.23/MMBtu higher than the average natural gas spot price at the Henry Hub in Louisiana during that same period. This differential is 400% more than it was in May 2018, when the ethane premium averaged $0.80/MMBtu (Figure 1).
Between 2013 and 2015, U.S. ethane prices remained consistently lower than natural gas prices, leading natural gas producers to reject (leave in) as much ethane in pipeline natural gas as possible to capture its value as a heating fuel instead of recovering and selling it as a separate product.
Since 2015, ethane prices have been generally higher than natural gas prices, resulting in ethane production growing faster than all other NGPL. Ethane production in the first half of 2018 averaged 1.6 million barrels per day (b/d), more than 0.5 million b/d (50%) higher than in the first half of 2015. In comparison, the production of all other NGPL in the first half of 2018 averaged 2.5 million b/d, 0.4 million b/d (17%) higher than in the first half of 2015 (Figure 2).
Higher ethane prices and increased production are the result of increased demand for ethane from the petrochemical sector. The petrochemical industry uses ethane, naphtha, and smaller quantities of other feedstocks to produce ethylene, a compound used in the manufacture of plastics, fibers, resins, and a wide range of other consumer and industrial materials. In the United States, consumption measured as product supplied for refinery-produced naphtha for petrochemical feedstock use has declined by 13% from the first half of 2012 to the first half of 2018. During the same period, ethane demand (which is almost exclusively from the petrochemical industry) increased by 55% (Figure 3).
Between 2012 and 2016, EIA estimates that more than 2.1 million metric tons per year (MMmt/yr) of new U.S. petrochemical cracking capacity came online, all in the form of plant restarts or capacity expansions, translating into approximately 130,000 b/d of new ethane demand. In 2017, two new cracking facilities in Texas, combined with multiple expansions at existing cracking facilities elsewhere along the U.S. Gulf Coast, increased demand for ethane as a petrochemical feedstock by an estimated 160,000 b/d. So far in 2018, 3.0 MMmt/yr of additional cracking capacity has come online on the U.S. Gulf Coast, adding approximately 180,000 b/d of ethane demand.
Outside the United States, petrochemical facilities that consume ethane as a feedstock are also expanding, and these expansions coincide with and are, in part, supplied by increasing U.S. ethane exports. U.S. ethane exports, which have become a significant outlet for U.S. ethane production, averaged 290,000 b/d in the second quarter of 2018. In 2016, two marine export terminals for ethane came online, one at Morgan's Point in Texas and another at Marcus Hook in Pennsylvania. This capacity to export ethane from the United States has enabled development of foreign ethane projects. For example, Braskem, a Brazilian petrochemicals manufacturer, has converted its petrochemical cracker in Bahia to consume ethane as part of its feedstock mix. Starting in October 2017, this converted cracker began being supplied by exports from the United States. Other U.S. ethane export destinations include India, the United Kingdom, Sweden, and Norway.
In Canada, the commissioning of expanded ethylene capacity at a petrochemical cracker in Corunna, Ontario, coincided with the early-2018 completion of the 50,000 b/d Utopia ethane pipeline linking ethane production in Ohio with chemical facilities in Ontario. The Utopia pipeline, combined with two other ethane pipelines that came online in 2014, has shipped 90,000 b/d to Canada in the first half of 2018 (Figure 4).
Ethane demand in both global and domestic markets is expected to continue to increase as more ethylene crackers come online and as pipeline and seaborne exports increase.
Growth in ethane production is expected to account for a significant share of the coming growth in production of all U.S. petroleum liquids. According to EIA's most recent Short-Term Energy Outlook (STEO), U.S. petroleum liquids production is forecast to grow by 3.2 million b/d from 2017 to 2019, and 16% of this growth is from ethane alone.
