OREANDA-NEWS. March 31, 2016. JS INEOS Intrepid departed Sunoco Logistics’ Marcus Hook terminal in Pennsylvania with the first waterborne ethane cargo. Arriving at the INEOS steam cracker in Rafnes, Norway, on March 23, the shipment is the culmination of four years of work to transport ethane internationally. However, uncertainty around the ethane market has grown as new projects for domestic and export use all come online simultaneous with declining production and low prices.

Platts Bentek details this uncertainty in a free Market Alert, No Longer Adrift: Navigating a Tighter Ethane Market. Ethane exports have been viewed as a major relief for gas producers in the Northeast, where limited infrastructure has forced producers to reject large volumes of ethane into the natural gas stream. Currently Platts Bentek’s Market Call: North American NGLs estimates 2016 Northeast ethane production at the wellhead at 311,000 b/d, with 125,000 b/d (nearly 40%) of that rejected. Ethane rejection was estimated at nearly 65% in 2015.

The volumes involved in ethane exports are comparatively small. Range Resources, the primary shipper in the contract with INEOS, has 20,000 b/d contracted on the Mariner East 1 pipeline to Marcus Hook. Approximately 50,000 b/d of ethane is contracted to flow on the Mariner West pipeline to cross the US/Canada border and serve southwestern Ontario’s petrochemical industry.

Enterprise Products Partners reports 110,000 b/d currently flowing on the ATEX pipeline from the Northeast to the Gulf Coast. Current capacity on ATEX is 125,000 b/d, and Enterprise has stated that an expansion up to 265,000 b/d would require 18-24 months’ work.

US ethane production forecast

Blue/red is total US ethane production based on our October 2014 forecast and green/purple is production based on our January 2016 forecast. Both are materially revised downward.

Looking forward, low commodity prices have reduced drilling activity and led to a less aggressive ethane production forecast, both nationally and in the region. In the 4Q 2014 Market Call: North American NGLs, published in October 2014, Bentek expected ethane supply from gas plants to reach roughly 2.07 million b/d in 2018.

In the latest edition of Bentek’s Market Call: North American NGLs, published January 2016, ethane supply reaches only 1.86 million b/d in 2018, a 10% decline. In the Northeast, the new ethane projections indicate a smaller decline, of just 8% from 479,000 b/d to 443,000 b/d in 2018.

Projects that will increase ethane demand both domestically and for export continue to move forward, primarily in the US Gulf Coast. Eight ethane crackers are currently under construction on the Gulf Coast will come into service between 2017 and 2018.

Among the cracker projects announced for the Northeast, none are expected to come online by 2018. Export volumes are expected to ramp up as the other ethane export terminal, Enterprise’s Morgan’s Point terminal in Texas, comes online later this year.

US ethane demand

With demand growth on the Gulf Coast, Northeast ethane remains stranded without greater pipeline access. ATEX is set to reach capacity in 2018, and Enterprise has made no announcement of expansion plans. The only alternative destinations for Northeast ethane in the near term are Mariner West to Canada or on Mariner East for waterborne export, both of which are already subscribed. Because ATEX is the only pipeline serving the Gulf Coast, it is the best candidate for expansion to meet new domestic petrochemical and export demand. Without that expansion and with current production forecasts, ethane rejection could exceed 175,000 b/d in the Northeast in 2018.

If capacity on ATEX remains restricted, Northeast producers will be disconnected from the domestic market. Lower regional ethane prices won’t matter because of the physical transport constraint. Thus, the ethane supply for new projects will need to be sourced from other regions, initially Texas and the Mid-Continent, and later the Rockies and Williston basin. Ethane prices will have to rise dramatically to overcome the costs to transport ethane to market, i.e. Mont Belvieu, Texas, and to fractionate ethane from other NGLs.

But even with ethane from the Rockies and Williston, without Northeast production, the US ethane market is short by just over 75,000 b/d by 2018. This ethane shortage would need to be made up through a combination of lower operating rates by existing petrochemical plants, delays for plants under construction, or reductions in export volumes. While this spring brought optimism for Northeast producers via a new market for their ethane, the lack of a domestic outlet looms on the not-so-distant horizon.