Players In Europe And Asia Are Serious About Cheap US Ethane

A fascinating guest blog post by my colleague, Nigel Davis (see below) explores how excess US ethane supply could help raise the competitiveness of European and US crackers. Provided, of course, that there is sufficient demand.

Henry.pngBy Nigel Davis

IT is becoming clear that European companies aside from INEOS are looking seriously at importing ethane from the US – and Asia players are said to be in the hunt for supplies of the cost-advantaged cracker feedstock.

“There are several companies that are already offering ethane at very favourable prices from North America either from the Gulf or the Philadelphia Marcus Hook area,” Versalis CEO Daniele Ferrari said in response to ICIS questions on 18 April.

“There are some very large operators that are starting to look for long-term contracts.”

Italy’s Versalis is considering shale gas ethane import contracts for two of its crackers, one in Italy the other in France.

“There is already one of our crackers, Brindisi [Italy]… which has the capability to switch and use ethane. This is already in place. The other one we are considering is Dunkirk [France]. Dunkirk geographically is positioned in the North Sea, and with a minimal investment, we could build up that facility as well,” Ferrari added.

Chemical companies from Asia and Europe are showing real interest in US ethane it became clear over the two-plus days of the American Fuel and Petrochemicals (AFPM) International Petrochemical Conference (IPC) at the end of March.

The IPC was buzzing with talk about shale gas and the availability of ethane, which midstream companies want to transport away to stimulate the production of more natural gas. The above chart illustrates the extent how ethane prices have fallen as supply has increased.

Consultants reckon that there will be excess ethane available on the US Gulf as pipelines shipping the feedstock from some of the big shale gas plays come on-stream over the next couple of years.

That is at least until the first of the big new crackers planned for the US start-up, after 2016 in all reality, and as long as environmental permits allow – that’s the biggest road block at present to the ethylene capacity expansion plans.

The infrastructure is being put in place to export more ethylene from the US Gulf but there is no hard news yet of investment in ethane exports. They would be tricky – it’s a bit like moving liquefied natural gas (LNG) – but by no means impossible as INEOS has shown with its plans for Marcus Hook in Pennsylvania.

INEOS wants to move ethane across the Atlantic to its cracker in Norway and will use dedicated vessels to do so. It has struck long-term deals for ethane supply to, and lifting from, Marcus Hook and 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 which is a 56% increase on availability in 2006, Peter Fasullo, principal with advisory and energy investment firm En*vantage said at the 2013 IPC.

And 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.

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.

Those volumes could be absorbed by the new cracking capacity, but on the other hand, to help keep the market active and to maintain drilling and extraction activity, they are likely to increase.

And the prospect of an excess of supply is certainly stimulating thought among players currently cracking liquids. The blog wonders who else might be able to secure some advantaged ethane or mixed ethane/propane feed and ship it east, or west through the widened Panama Canal?

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