HOUSTON (ICIS)--US ethane exports to Europe are unlikely to tighten the nation's market balance to a significant degree even under the most aggressive scenarios, an analyst said on Monday.
Geography, economics and co-products will cap the amount of ethane that European crackers could import from the US, said Hassan Ahmed, an analyst at Alembic Global Advisors. He made his comments in a research note.
The US could start exporting a significant amount of ethane if Enterprise Products pursues its terminal project.
Last month, the company announced that it may build the world's largest ethane terminal on the US Gulf coast.
If Enterprise pursues the project, it should start operations in Q3 2016 and have a capacity to export up to 240,000 bbl/day ethane, the equivalent of three world-scale crackers.
If built, the terminal would join Sunoco Logistics's Marcus Hook site on the east coast. It will export ethane to the INEOS cracker in Rafnes, Norway.
These two terminals could export up to 411,000 bbl/day of ethane, Ahmed said.
Despite these terminals, the US ethane market should tighten only briefly in 2017 and 2018 before loosening up again, Ahmed said.
That is due in part to his forecasts for US ethane production. Ahmed expects US ethane supplies to rise from 2013's 1.26m bbl/day to 2.50m bbl/day in 2020.
Europe, though, is also limited in the amount of ethane it can consume.
Many European naphtha crackers are located inland, which would prevent them from receiving overseas shipments of ethane.
In addition, the naphtha crackers would require expensive retooling to allow them to use ethane as a feedstock, Ahmed said. These costs limit the number of crackers that can economically convert to ethane.
Currently, 3% of European crackers use ethane, Ahmed said. That amounts to 50,000 bbl/day of ethane consumption.
Another 8% use ethane and other natural gas liquids (NGLs), so they could convert to pure ethane at a relatively low cost, Ahmed said.
Altogether, 15% of Europe's ethylene production could start using ethane once US exports commence, Ahmed said. That amounts to about 275,000 bbl/day of ethane consumption.
Moreover, the European crackers that do switch to US ethane will not achieve drastic savings, he said.
Assuming a US ethane cost of 40 cents/gal, the delivered price tag would be 70 cents/gal for a European producer, Ahmed said. Once a 15% margin is added, the European importer will face a price tag of 81 cents/gal.
Under this pricing scenario, European crackers would hit a break-even point if US ethane prices reach 47 cents/gal, Ahmed said.
"This, in our view, highlights the conundrum faced by European producers – should they go ahead and spend capital on ethane storage facilities as well as retooling their existing facilities to process ethane if margins could turn negative at a relatively low US ethane price," he said.
The biggest issue, though, could be co-products, Ahmed said. Lighter feedstocks produce lighter products.
US companies are already contending with this, and they have responded by proposing propane dehydrogenation (PDH) units, which produce on-purpose propylene.
If European crackers were to consume all of the ethane that Enterprise and Sunoco could possibly export − 411,000 bbl/day − then BD production would be halved and propylene production would fall by a fifth, Ahmed said.
The following lists Alembic's forecasts for US growth in supply and demand for ethane.
|US ethane supply/demand balance in thousands of bbl/day|
|Year||Supply||Demand||Utilisation||Exports||Surplus||Demand + exports||Total utilisation|
|Source, Alembic Global Analysis|