Viewpoint: US ethane prices poised to rise in 2H

OREANDA-NEWS. August 12, 2016. US ethane production from gas processing surged from 1.2mn b/d to 1.31mn b/d between the first and second quarters of 2016, according to EIA data, as producers rejected less of the feedstock ahead of new export demand and an uptick in petrochemical demand.

Spot ethane prices at Mont Belvieu, Texas, rose from an average of 15.8?/USG to 20.33?/USG during the first half of the year as exporters purchased forward month volumes ahead of the commissioning of new export capacity at Marcus Hook, Pennsylvania in March and loadings from Enterprise's new terminal at Morgan's Point, Texas, this month. The Marcus Hook facility currently can receive up to 70,000 b/d of propane and ethane from the Mariner East pipeline. Enterprise's new ethane terminal will be able to export up to 200,000 b/d; about 90pc of that capacity is contracted.

This surge in export buying interest alongside steady consumption by ethylene crackers pushed ethane well above its fuel value, hitting as high as an 8.92? premium 9 June. Prices dropped abruptly in early August, however, pushing ethane below fuel value during the first half of the month.

Ethane's decline against natural gas came as major market participants who purchased August ethane ahead of export demand were suddenly long following minor delays in the commissioning of the Morgan's Point terminal. At the same time, two unexpected outages at Gulf coast ethylene crackers in August contributed to bearish sentiment.

Once exports reach their full capacity, however, US ethane prices are poised to rise throughout the remainder of the year. At the same time, the addition of new ethylene cracking capacity in the fourth quarter will bolster domestic consumption. The US consumed 1.07mn b/d of ethane in the second quarter, up from 1.02mn b/d in 2015. Enterprise, which delivers ethane to Gulf coast crackers, estimates an additional 303,000 b/d of ethane demand is coming online in 2017 as Chevron Phillips Chemical, ExxonMobil, Dow, and Occidental commission new plants.

While US ethane is poised to rise for the remainder of the year, it is unlikely demand from exports and cracking will manage to outpace production this year. Any surge in ethane prices will improve cracking economics for propane, causing slightly less demand. At the same time, ethane exports will likely remain steady, contrary to the liquid market seen in LPG, as there are only a handful of companies with the offtake facilities to handle ethane. For that reason, there would be little chance of a surge in ethane exports as cracking economics in Europe and Asia fluctuate.