AFPM: Ethane surplus is set to continue

US ethane production is at an all-time high at the moment, with excess material either being exported or returned to the energy combine. Prices are at a low level despite rising domestic demand

US ethane production and supplies hit all-time highs in 2014, even as demand and exports were also at record levels. US shale gas and horizontal drilling have afforded the US a bounty of ethane and other natural gas liquids (NGLs), such as propane, butane and natural gasoline.

Ethane oversupply is resulting in it being left in the natural gas stream for heating purposes Copyright: Rex Features

This abundance in supplies, as well as the crash in crude oil, has prices at some of the lowest levels in years. US ethane supplies totalled 34.9m bbl in December 2014, according to latest data from the US Energy Information Administration (EIA).

That is a 13.3% year-on-year increase from 30.8m bbl in December 2013.

Ethane supplies hit an all-time high of 41.0m bbl in July 2014. Supplies have declined steadily ever since. In fact, December’s supplies were the lowest since April 2014.

Ethane production was also at an all-time high in 2014 at 391.0m bbl produced at gas plants, 10.4% higher than 354.1m bbl in 2013.

Production peaked in July 2014 at 34.1m bbl. It was at 33.3m bbl in December 2014, up by 4.7% from 31.8m bbl in December 2013.

Additionally, ethane demand has made a tremendous recovery since the 2008 recession, when demand hit a low of 14.0m bbl in September of that year. Demand was at its peak nearly six years later at 35.1m bbl in August 2014, an increase of over 150%.

Ethane exports have also started to ramp up, with a few companies announcing major projects, including Enterprise Products Partners and Sunoco (see page 40).

Ethane exports reached 70,000 bbl/day in December 2014, the highest amount ever recorded. There were no ethane exports prior to 2014, according to the EIA. The first report of ethane exports was in February 2014 at 24,000 bbl/day.

Analysts expect ethane exports to Europe and Asia will likely increase over the next several years. However, the top destinations for US ethane will likely be in North America and South America once the proposed terminals get built.

Meanwhile, in 2015, ethane demand has continued to be supported by pent-up ethylene production. A spate of cracker outages in the fourth quarter of 2014 depressed ethane demand during the period.

Ethylene production has started to come back online in the first two months of 2015. This uptick in production has supported ethane spot prices in the short term.

Accordingly, spot prices at the Mont Belvieu hub in Texas have strengthened for four straight weeks, with the average spot price breaking the 20.00 cent/gal barrier for the first time in 2015. The low for the year was 16.50 cents/gal at the beginning of February.

As Chevron Phillips Chemical restarted its Port Arthur cracker in Texas in December, and Williams has begun start-up at its Geismar plant in Louisiana, ethane demand will likely increase by 50,000-70,000 bbl/day in the first quarter of 2015.

However, ethane prices remain at very low levels. At this time last year, Mont Belvieu ethane spot prices were above 31.00 cents/gal, as prices were coming off the highest levels since the summer of 2008. A combination of severe winter weather, pipeline outages and increased exports drained supplies and sent prices soaring.

The absence of those issues in 2015, along with record production levels, have weighed heavily on the ethane spot market.

In fact, ethane rejection, a process by which ethane is left in the natural gas stream and sold to heat and power homes and businesses, has risen to about 400,000 bbl/day.