05 April 2013 16:01 [Source: ICIS news]
By Nigel Davis
LONDON (ICIS)--An expected surge in ethane availability in the US Gulf has prompted serious interest in potential exports to Asia and Europe.
Exports wouldn’t be made easily, or cheaply, but would fill a demand gap for ethane in the US between 2014 at least until a string of new cracking capacity comes on-stream.
Natural gas liquids (NGLs) are supply, not demand driven and shale gas drillers and gas processors in the mid-stream are expected to have fresh ethane supply readily available.
Yet, while ethane is not necessarily a headache for the supply industry, it holds little value in the NGLs mix and has only one major end-use – petrochemicals.
Ethane’s value in the NGLs stream and to the gas driller and processor currently is even smaller than it was in 2011 and is only tracking its energy value, as the chart shows.
US cracker operators have been making the most of the increased supply of NGLs as the shale gas revolution in North America transforms the hydrocarbons environment.
Supply of the primary ethylene feedstock, ethane, has increased markedly and, given its relationship to natural gas and the other NGLs, its cost has come down.
US ethane cracking margins have increased and there are clear expectations that the shale gas advantage will be passed down the ethylene value chain.
But, hardly surprisingly, petrochemical producers outside North America, particularly those in the costly (liquids) feedstock regions would like a piece of the action.
Inward investment to the US is one thing but petrochemicals major INEOS created a flurry of interest late last year when it revealed plans to export ethane from Marcus Hook in Pennsylvania to feed predominantly its gas cracker in Norway and potentially a plant in Scotland, UK.
At the time, the INEOS project was seen largely as a stand-alone investment. Ethane can be shipped, but not easily. Exporting and receiving terminals need to be in place, or constructed. And cracking furnaces have to be able to accept the feedstock.
But, not surprisingly, there are ways around these obstacles and the economics of ethane transport from a cost advantaged source such as the US may just work.
INEOS has struck long-term deals for ethane supply to, and lifting from, Marcus Hook. It has a 15-year shipping agreement with Evergas which will build and operate new customised vessels to move the ethane to a newly constructed tank in Rafnes.
Currently in the US there are 700 gas processing plants capable of producing 1.1bn bbl/day of ethane, Peter Fasullo, principal with advisory and energy investment firm En*vantage said at the 2013 American Fuel and Petrochemical Manufacturers, (AFPM) International Petrochemical Conference (IPC). That is a 56% increase on availability in 2006.
The US shale gas and oil potential is significant with new fields likely to be exploited over the next few years and transport infrastructure put in place. The new shale plays are “transforming the NGLs value chain”, Fasullo said, and are on the way to creating a hydrocarbon rich environment.
The road to that new environment could be bumpy, though, especially as far as ethane supply is concerned. With only one outlet and many suppliers the supplier has to have options. Ethane represents 45% of the US NGL barrel, Fasullo pointed out, but extraction from gas processing is largely discretionary.
En*vantage estimates that US ethane extraction capacity will rise to 1.7m bbl/day by 2020 in a relatively conservative scenario. The high supply case is for extraction rising to 2.0m bbl/day in the same time frame.
A great deal of supply will be made available to cracker operators in the US Gulf, the major location in the US for the production of petrochemicals, but there is only so much that can be consumed in the area before the first of five or more world-scale crackers come on-stream sometime after 2016.
Currently, 1.1m bbl/day of ethane are being consumed in US crackers with En*Vantage expecting cracker demand to rise to 1.9m bbl/day by 2018.
Within a year or two it is possible that an ethane export terminal could be built on the US Gulf Coast to export ethane to Europe or to Asia via an expanded Panama Canal, said Fasullo.
Ethane exports of 130m-150m bbl/day of ethane from the US to Canada and Europe under current agreements – INEOS and supply to Nova Chemicals – are included in the calculations.
Given current ethane supply and demand scenarios, there was clear interest in US ethane exports among European and other players at the IPC.
Yet there is also a widespread understanding that the developing energy value chain in North America, including the potential for exporting some liquefied natural gas (LNG) away from US shores, will play the key role in determining ethane and NGLs supply and demand and ethane costs.
The upstream, midstream and downstream in the NGLs business are very reliant on one another and as far as ethane is concerned reliant on the petrochemical player.
Fasullo is not alone in his belief that ethane exports could become a prominent demand feature for the US.
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