INSIGHT: Opening the doors to global ethane trade

11 July 2014 14:59 Source:ICIS News

By Nigel Davis

LONDON (ICIS)--Might the steep cut in India’s import duties on petrochemical feedstocks prompt more of the investment needed to open deep sea trade in ethane?

Producers in India are known to have looked closely at converting naphtha cracking capacity and the economics of ethane trade. Currently mid-stream operators in the US just don’t know what to do with the stuff and up to 300,000bbls/day are being rejected by gas processors to be burned in the natural gas supplied to power houses and businesses.

Ethane will be in excess and something of a headache for fracking firms and mid-stream operators at least until later this decade when a wave of new cracker capacity is likely to come on stream in the US. Even after that, ethane is still expected to be available in relative abundance.

The only firm contracts on ethane separation, export and supply have been struck by INEOS which is investing in costly logistics to feed two of its crackers in Europe.

Other firms in Europe have looked at importing ethane but have not (yet) been prepared to commit to the investment required to move what is a fairly difficult gas.

INEOS’s long-term ethane supply deals are with gas providers in the northeast of the US and storage capacity in Marcus Hook, Pennsylvania and with Enterprise Products out of a terminal on the US Gulf.

Evergas has contracted to have built six 27,500 cubic metre multi-purpose gas carriers to ship the liquefied gas to INEOS storage tanks at its cracker in Rafnes in Norway and Grangemouth in Scotland. The vessels are being built in China.

Other shipping firms want to capture business in this emerging market.

Navigator Gas has four $78.4m ethylene/ethane vessels on order from China which can carry NGLs, ethylene or ammonia.

“The 35,000 cubic metre ethylene & ethane carriers are specifically designed in anticipation of large scale exports of ethane becoming available from surplus US shale gas production and the desire by international petrochemical companies to diversify their feedstock supplies with low cost US ethane,” it said in April.

Reports in May suggested that two other shipping firms were battling to secure contracts from India’s Reliance Industries to support the construction of very large ethane carriers (VLECs), or multi-purpose vessels possibly at least double this size.

One firm, Exmar, confirmed to shareholders in May that it would pursue opportunities in VLECs.

A number of these vessels would be required to ship ethane on a large scale to potential customers in India or China. Their availability for this purpose would depend upon investment in export terminals in the US and receiving country storage facilities as well as some cracker conversion. In the case of ethane customers in China, it would be dependent on completion of the widening of the Panama Canal.

Reliance cracks naphtha at its currently largest cracker complex at Hazira in Gujarat. It has large gas crackers in Dahej, also in Gujarat and Nagothane in Maharashtra, which take an ethane propane (EP) mix and also crack propane, according to ICIS data. The company’s 1.5m tonne/year cracker being built at its giant Jamnagar complex is planned to be fed with refinery off-gases.

Reliance was not immediately available to comment about the possibility of ethane imports for these facilities.

Presenting India’s 2014-15 budget on Thursday, finance minister, Arun Jaitley, said basic customs duty on a number of feedstocks and petrochemicals would be reduced to encourage new investments and capacity additions in the chemical and petrochemical sector.

The duty on ethane, propane, ethylene, propylene, butadiene and orthoxylene would be cut from 5% to 2.5% and the duty on reformate slashed from 10% to 2.5%. Cuts on import duty on a number of other chemicals and natural products were also proposed.

The tariff cuts would have little material impact on ethane imports, if they do start, simply because it takes time to build infrastructure and storage capacities and to establish trade links. But the propane tariff cut would be of benefit to importers, industry observers say.

No-one has yet made the investment decisions for terminals, transport and trade, it seems, although at times those decisions appear tantalisingly close.

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By Nigel Davis