INSIGHT: CERI assesses the North America ethane advantage

03 September 2012 14:25  [Source: ICIS news]

By Nigel Davis

LONDON (ICIS)--The increasing availability of natural gas liquids (NGLs) in North America should ensure higher capacity utilisation at Alberta’s four crackers, the Canadian Energy Resources Institute (CERI) says.

Ethane availability for the crackers has declined in recent years as natural gas production has fallen and gas volumes have been exported away. But as natural gas prices in North America have dropped, producers have focused on liquids-rich resources. New sources of gas have also come into play.

Ethane imports from US shale gas plays, increased ethane availability from oils sands off-gases, and recovering natural gas volumes from the Western Canada Sedimentary Basin (WCSB), as well as provincial government-supported ethane extraction projects, will help to provide feedstock for the units, CERI says.

Its analysis, which looks out to 2035, “indicates the potential for ethane production is well above and beyond current demand,” although, not surprisingly, there is a caveat.

Excess ethane from the WCSB, for instance, is likely to be extracted only if petrochemical producers expand their production facilities.

On paper there could be enough ethane available in the province to support the addition of the equivalent of two world-scale crackers.

The CERI report highlights the widespread opportunities that currently exist in North America for petrochemical producers to take advantage of increased supply of ethane and other NGLs feedstocks.

Ethane in Alberta, of course, could be left in the natural gas stream and sold for its heating value. More propane could lead to the development of propylene-based process opportunities. And synthetic gas liquids offer another value-adding route from gas liquids feed to upgraded chemical products.

But it is a question of whether that upgrading ever takes place. Feedstock availability is one thing; market access and development are another. What incentives are there to build additional olefins and downstream capacities in Western Canada based solely on projected feedstock advantage? At some stage, downstream industrial development has to come into play, otherwise feedstock volumes rather than chemicals are likely to be exported to markets probably in the US.

The CERI study, its first major North America NGLs report in 10 years, shows where the opportunities exist for current – and future – olefins producers in North America and the changing feedstock and industry dynamic.

Of course, the Gulf Coast region dominates in terms of ethane availability and the potential for increased olefins production, even though it will take time for the midstream gas transportation system to catch up with burgeoning NGLs availability.

A new shale gas well can be brought on-stream in a matter of weeks, CERI notes, but midstream infrastructure can take from 12 to 36 months to plan, permit and construct.

Gulf Coast ethane supply increased by 29% in the five years to 2011 to 875m bbl/day, it says. Ethane availability is expected to increase to 1,145m bbl/day, or by 256m bbl/day, by 2017 as NGLs flow from other parts of America and local Gulf Coast region – the US Petroleum Administration for Defence District (PADD) III – sources of supply.

The new ethane crackers planned or under construction in the Gulf Coast region will only be consuming this ethane from 2017. Surplus ethane has already pushed prices down enough to make re-injection an option. “Ethane prices are expected to recover as this incremental cracking capacity comes on line,” CERI says.

Excess ethane supply of some 220m bbl/day begins to develop in 2012, it adds, indicating that ethane prices will be quite low across North America. “Assuming announced ethane cracker projects are constructed as announced, the market moves into relative balance in 2017.”

The 7.7m tonnes of new ethylene capacity it identified when researching this report, and not simply the planned crackers and expansions on the Gulf Coast, would need about 460m bbl/day of additional ethane feedstock.

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By: Nigel Davis
+44 20 8652 3214

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