Ethane Production

It looks like the U.S. ethane market may have just dodged a bullet. Since late May, the U.S. Bureau of Industry and Security effectively banned ethane exports to China, the destination for two-thirds of the ethane sent out of Gulf Coast docks — about 225 Mb/d in 2024. Ethane has become a bargaining chip in U.S.-China negotiations over rare earths and tariffs, in part because China has no alternative source of waterborne ethane feedstock for its petchems. But playing the ethane card presented a potential problem for the U.S. too. While China isn’t the only export market for U.S. ethane, there are very limited other destinations for the volumes they typically take. The need to find a home for those volumes could have required significantly more “rejection” of ethane into natural gas at U.S. gas processing plants — i.e., selling ethane for its fuel value instead of recovering it for petchems or export.  In today’s RBN blog, we examine the ethane export issue, which remains in flux as part of the broader U.S.-China trade agreement still being finalized. 

What’s the fastest-growing U.S. hydrocarbon? You guessed it — ethane. Since 2016, ethane production has grown at almost 2.5 times the rate of crude oil or natural gas and 1.5X that of other natural gas liquids (NGLs). And there’s a lot more upside potential where that came from. It’s entirely demand-pull, meaning that U.S. ethane production growth is being driven by increasing domestic and export demand for the petrochemical feedstock. Shell’s new steam cracker in Pennsylvania is online, CP Chem and Qatar Energy are planning a new cracker in Orange, TX, and other projects are in the works. On the exports front, both Enterprise and Energy Transfer announced export-terminal-expansion projects in 2022. All this new ethane demand needs supply, and fortunately the U.S. has the barrels, not only from ever-increasing NGL production, but also from ethane that today is being rejected and sold as natural gas. And the markets will need new pipes, fractionators, and ships to get that ethane to market. With today’s RBN blog, we begin a series to explore what these developments mean for U.S. ethane market players.

Demand for ethane from U.S. steam crackers is rising as recently completed ethane-only crackers ramp up to full production and additional crackers are finished. To keep pace with demand growth, a portion of the ethane now being “rejected” into the natural gas stream and sold for its Btu value will instead need to be left in the mixed-NGLs stream and fractionated into purity-product ethane. This raises two questions. First, in which shale plays will this shift from ethane rejection to ethane production occur? And second, how much will ethane prices need to increase to encourage the shift and make the required incremental volumes of ethane available? Today, we continue a series on ethane-market developments with a look at where the next tranche of ethane supply will come from and how high ethane prices might need to rise.

The U.S. ethane market has experienced major ups and downs in the past couple of years. First, there was sharply rising demand from new steam crackers, a fractionation-capacity crunch and soaring ethane prices. Then came an ethane demand slump, plummeting prices and a big jump in inventories. More recently, though, the market seems to have returned to a state of relative equilibrium. Ethane prices have settled in — at least for now — at about 22 cents/gallon (gal), a couple of pennies below where they had been standing rock-steady before all hell broke loose. Ethane demand from existing steam crackers is rising again, and new cracker capacity is coming online. The questions now are, with demand on the upswing, will ethane prices be rising too — and, if so, by how much? And what does that mean for steam cracker economics? Today, we discuss recent developments in the ethane market and explain why there’s good reason to believe that ethane prices won’t be spiking anytime soon.

The ethane market isn’t for the faint at heart — it’s got lots of ups and downs, and it’s impacted by an unusually wide range of variables. A year ago this month, a combination of fractionation constraints in Mont Belvieu and rising demand from new ethane-only steam crackers sent ethane prices north of 60 cents/gallon. For most of the time since then, though, ethane prices were in something close to freefall, bottoming out at only 10 cents in late July before rebounding in recent weeks to 20 cents or so. During the big, months-long price decline, ethane traders and cracker operators did what anyone does when they can buy something they’ll need in the future for next to nothing — they stocked up. Today, we examine recent trends in ethane supply, demand, prices and storage levels, and take a look ahead.

After years in the doldrums, ethane prices are increasing, not so much in absolute terms, but where it counts — relative to the price of natural gas. That means less ethane will be rejected — sold as natural gas — and more will be recovered as liquid ethane and sold as a petrochemical plant feedstock. As still more new ethane-only petrochemical plants come online over the next couple of years, ethane demand will increase, boosting ethane prices and resulting in still less ethane rejection. Does that mean ethane rejection will be a thing of the past? No, not even close. U.S. natural gas production, especially gas with a high ethane content, is growing so fast that ethane supply will continue to outstrip demand for the foreseeable future, with important consequences for ethane prices. Today, we continue our review of NGL market developments.

Lately the ethane market seems out of whack.  Ethane production continues to increase even as it’s become the lowest margin (highest cost) feedstock for Gulf Coast petrochemical crackers – it’s main market.  Ethane production by processing plants has been at an all-time high since June this year even as ethane prices fell to historical lows.  Meanwhile, ethane inventories have fallen from their recent peak in July.  How can all that make sense?  Today we speculate as to what may be going on.

A drum we have been beating with some regularity here at RBN  is that, thanks to fast-rising production in the Eagle Ford, Permian, Marcellus/Utica and other “wet” natural gas plays, the US is awash in ethane and will become even more so. As it turns out, we now expect that “potential ethane” production will increase even more quickly than we had previously thought, to 2 MMb/d in 2016 and 2.6 MMB/d in 2019. We also believe that while the half dozen world-class steam crackers expected to come online the next few years will use some of the increased output, there will still be a lot of surplus ethane left to export—or, failing that, to reject into natural gas. In today’s blog, we provide updates on ethane production, economics and rejection, and on the potential for new ethane-consuming steam crackers and increasing ethane exports.