The “Logic” Of US Ethane Exports

Enteprise

By John Richardson

THE search for feedstock advantage is constant, given that some 80-90% of variable costs for any petrochemicals producer consists of the cost of acquiring raw materials.

Hence, my colleague Nigel Davis, in this excellent Insight article, writes:

  • The US company, Enterprise Products, is planning an ethane export terminal on the US Gulf Coast in Texas. This could herald the start of global commercial trade in ethane by water. (The exact location of the terminal is not yet known but it will be integrated with the Enterprise complex at Mont Belvieu, Texas, which produces natural gas liquids – see the above picture)
  • Only one company to date, INEOS, has committed capital to importing ethane from the US for crackers in Europe and it has confirmed that it would consider securing deep sea ethane from other sources. Currently, it has agreements in place to move ethane from Marcus Hook in Pennsylvania to import and storage facilities it is building in Norway and Scotland. (See our comments below about Grangemouth in Scotland) 
  • But it also believed that shipments to India and to China where some cracker operators have already expressed an interest in US ethane are likely, as might be shipments to Southeast Asia. Whilst most of the ethane from the Enterprise Products facility is likely to go to Europe, volumes could be moved to Asia once the Panama Canal has been widened. The project to double the canal’s capacity is due for completion in 2015, although there have already been delays.

But specialist ships will have to be built to move the ethane, which has to be compressed rather than liquefied – and so liquefied natural gas (LNG) carriers cannot be used. A large ethane carrying vessel would be somewhere in size between an LPG (liquefied petroleum gas) tanker and an LNG carrier.

“The storage and logistic costs would be horrendous on their own, not to mention the cost of new receiving terminals,” an industry observer told the blog.

Overseas ethane shipments might thus only work in very specific cases, where cost per tonne economics are not the only consideration.

For instance, in Grangemouth in Scotland, a government-guaranteed loan will help fund the necessary infrastructure investments for importing ethane. This followed a deal brokered last year between INEOS and the UK governmnet, after the political and social  implications of the threatened closure of the Grangemouth refinery-petrochemicals complex came into play.

And in China, and this is pure speculation, but here goes anyway: Shipping in ethane to coastal crackers might in some cases make more political sense than building new local refineries to supply naphtha, because of increasing environmental pressures.  But how would this sit with the increased focus on producing a genuine return on capital?

If shipments occur to other locations in Asia, the blog also wonders whether the economic playing field will always be entirely level. There are many ways, both within and outside World Trade Organisation rules, of protecting local petrochemicals markets.

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