OUTLOOK: Infrastructure, price advantage keeps US ethane in demand

23 December 2011 16:01  [Source: ICIS news]

A map of the Marcellus ShaleBy Sheena Martin

HOUSTON (ICIS)--Ethane will remain in high demand from the chemical sector as infrastructure companies continue to plan and break ground on shale projects for bringing the feedstock and natural gas to the market.

“Ethane has so much price downside that it will not lose market share to another feed for any prolonged period of time,” said analyst Dan Lippe with Petral Worldwide.

Natural gas in shale regions is currently log-jammed because of the lack of piping and rail to transport it to gas processors and fractionators. This could limit supply of ethane for the next few years until the infrastructure is in place, leading to tight ethane supplies.

“Ethane may have to lose market share when ethane inventory falls too low to support high demand rates,” said Lippe.

Infrastructure on the US Gulf is lacking, as well as in the northeast. Ethane prices in October of 2011 surged to a three-year high because of inadequate pipeline capacity to meet strong demand in the chemical market, Lippe said.

“Ethane buyers have finally snapped to the fact that ethane inventory will fall to record lows in the next [few months],” Lippe said.

Ethane made up 57.7% of the US cracker feedstock in October 2011, according to Jacobs Consultancy.

The focus of the ethane market is currently on the Marcellus shale in Pennsylvania, West Virginia and New York.

The total supply of ethane in the Marcellus shale by 2016 to 2017 will potentially reach 250,000-275,000 bbl/day, said Jack Lafield, president of Caiman Energy, a producer in the Marcellus basin.

Multiple projects have been announced to move ethane out of the Marcellus basin, which would free up regional producers to develop the rich gas.

Projects have included potential construction of crackers in the northeast to establish a chemical market, in addition to pipeline projects for moving ethane to established chemical markets.

Chesapeake Energy announced a contract with Enterprise Products to supply 75,000 bbl/day of ethane for five years to Enterprise’s 125,000 bbl/day proposed ethane pipeline from the Marcellus and Utica shale regions in West Virginia, Ohio and Pennsylvania to the US Gulf.

“Without a market for ethane, the industry [in the Marcellus shale] could be choked in its formative stages,” said Chesapeake vice president of corporate development Scott Rotruck. “Now that we have made arrangements for a pipeline outlet, we can produce more ethane and turn our attention to the development of a local cracker.”

The US Gulf Enterprise pipeline would feed the Enterprise’s natural gas liquids storage. Enterprise has a natural gas liquids fractionator, and import and export terminals.

In addition, NOVA Chemicals secured long-term supply contracts for Marcellus ethane production and announced plans for transportation of ethane through an existing Sunoco pipeline to NOVA’s cracker in Sarnia’s petrochemical sector in Canada.

The Sunoco pipeline will have an ethane capacity of about 50,000 bbl/day.

Combined, the pipeline projects will remove 125,000 bbl/day of ethane from the Marcellus shale market.

Lafield said there is plenty of supply for a 60,000-80,000 bbl/day cracker as there will be 4bn-5bn on cubic feet/day of gas that is rich in natural gas liquids from the Marcellus region by the time a cracker came online in 2016-2017.

“Negotiations are still underway with investors in the petrochemical industry to build a cracker in the production area – these pipeline announcements simply ensure that all of our ethane barrels have a destination,” Chesapeake’s Rotruck said.

Shell announced it would reveal a location for a 60,000-80,000 bbl/day cracker in the Marcellus and Utica shale basins in January 2012.

In addition, Bayer continues discussions with interested companies considering the company’s available land in West Virginia, a possible location for an ethane cracker.

By: Sheena Martin
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