AFPM '13 - INSIGHT: Abundant ethane opens US Gulf Coast potential

25 March 2013 23:27  [Source: ICIS news]

By Nigel Davis

SAN ANTONIO (ICIS)--The Marcellus shale deposit in the northeast of the US has caught the attention of the chemical industry in the past two years, alongside Eagle Ford and Bakken, perhaps.

Some, maybe, have heard a little about the Utica shale. But what about Wolfcamp, the Cline shale, Brown Dense shale and Tuscaloosa Marine. These new shale plays are transforming the natural gas liquids (NGLs) value chain, says En*Vantage’s Peter Fasullo. And it is very much a question of getting NGLs to market(s) that is the critical issue rather than their availability in the first place.

Ethane consumption in the US currently is about 1.1m bbls/day but will rise as new infrastructure is built to ship the gas liquids from the shale plays to the primary markets for petrochemicals.

Some flows are already (almost) in place – such as the pipelines taking ethane from the Bakken field in North Dakota to Nova and others’ cracking furnaces in Joffre, Alberta, and to Nova’s cracker in Corunna, Ontario.

The Ontario plants will be fed from the Marcellus but it is the flows south that are really taxing the minds of mid-stream players and producers on the US Gulf Coast. That is where the first big ethylene plants will be built. Possibly five crackers could come on-stream around 2018.

In fact, there are seven announced cracker plans in the US. Between them, and plans to expand existing plants, we could see a 10% lift in ethylene capacity – the addition of almost 10m tonnes/year of capacity.

Plans for derivatives also are in place, with more to come, to maximise the ethane advantage and push value down into ethylene oxide and glycol and into polyethylene. More new project announcements are expected.

And as reported in ICIS Chemical Business (ICB) this week, US producers are enjoying record margins with low prices for ethane and propane NGL feedstock. Wall Street analysts expect a peak in the current ethylene cycle in 2014-16.

"Looking at the revised cost curves and what we expect to be a capacity addition vacuum in the 2012-2017 time period, we expect to see a long duration and high amplitude peak in the commodity chemical cycle as early as 2015-2016," Hassan Ahmed, analyst at Alembic Global Advisors, says.

"This suggests that there may still be substantial room for positive earnings revisions and in turn, a further share price rally for US ethylene exposed names."

What happens after 2017, of course, may be very different, with ethylene long and feedstock ethane relatively tight. NGLs costs could rise squeezing margins in a plentiful ethylene supply environment.

But looking back upstream, the flow of ethane from existing and new shale plays even relatively pessimistically looks as though it will be more than sufficient to supply the (petrochemical) industry until 2017. Fasullo expects the capability to crack ethane (plus some ethane exports) to rise to close to 1.9m bbl/day by 2018. En*Vantage's high-case scenario is for ethane demand to be pushed above 2m bbl/day.

In the run up to 2017/18, however, it is likely that someone will take the advantage to export ethane from the US Gulf Coast, Fasullo says. The feedstock would be sold into Europe or into Asia via the widened Panama Canal.

Ethane export would be costly and technically tricky but not impossible. It would be like shipping liquefied natural gas (LNG). Petrochemical producers outside the US are keen to get their hands on relatively cheap ethane feedstock and to take a share directly in the shale advantage.

Companies clearly, are gearing up to export ethylene and potentially derivates from the new crackers and downstream units. It will be intriguing to see how far upstream the export card is played.

Petrochemical players on Monday at the 38th American Fuel & Petrochemical Manufacturers (AFPM) International Petrochemical meeting (IPC) were talking about adding new supply in the US to tap into the shale advantage.

INEOS chairman Jim Ratcliffe, in a rare public presentation, said that his company is likely to put more capital investment into the US while restructuring is the name of the game in Europe.

Ratcliffe also described how tough it can be to strike a profitable deal in Asia.

Likewise, Peter Huntsman was suggesting that his company might look more closely at investment in the US having been frustrated by the permitting process in China.

The environmental permitting process in Texas is another story: it is fraught with difficulty and a potential roadblock to new investment.

The promise of shale, however, and the prospect of a number of years at least of healthy ethane supply and competitive prices, continue to open up a raft of possibilities for players in petrochemicals, and not just those in the US.

Read Paul Hodges’ Chemicals and the Economy blog
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Asian Chemical Connections blog

By: Nigel Davis
+44 20 8652 3214

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