One of the most widely asked questions over the last several years with regard to the petrochemicals industry has been: “How much ethane is available in the US?” After all, if some of the ethane is rejected (i.e., not recovered), how do you measure it? How do you know how much could be available?
Ethane rejection is a process in which ethane is left in the natural gas stream and sold as natural gas to power generation and manufacturing facilities; and to residential and commercial users for heat generation, rather than extracted from the gas stream with the other natural gas liquids in gas processing plants for use in petrochemical production or exports.
This can happen due to lack of infrastructure or if the price of ethane falls below its fuel value, making it less economical to separate and sell the ethane.
If a company decides to build a multi-billion-dollar steam cracker to produce ethylene from ethane, how does management gain the confidence that the ethane will be available? And lastly, how long will US ethane remain economically advantaged? And the answer to these questions, is… opinions vary!
After all, if a tree falls over in the woods and there is no one around to hear it, how much noise did it make? How do you prove something that never happened? With regard to how much ethane was rejected, you could call each of the 550 or so gas processing facilities in the US once a month and try to get information from them and try to compile enough data to calculate the amount of ethane that could be produced from the plant.
You could hire a consultant to figure it out for you, or you can do a pretty decent estimate based upon the information at hand from the US Energy Information Administration (EIA), bearing in mind that the data is two or more months in arrears.
USING EIA DATA STEP BY STEP
First, go to the EIA website (http://www.eia.gov) and download the latest Microsoft Excel spreadsheet/workbook from the US Natural Gas Plant Field Production report.
At this point, you only need two assumptions to complete your estimate. The first is the percent of total natural gas liquids (NGLs) production that is ethane – the second is the percent that is propane. Historically, the rule of thumb was always 42% ethane and 28% propane.
According to EIA data published 28 April 2017, there were 1,377 mbd of ethane recovered and 1,176 mbd propane recovered from plants during February 2017.
An insignificant amount of propane is rejected with the ethane during rejection – propane is pretty much fully recovered, as are butanes and pentanes. Thus, we can use the propane number to gross up an estimated “actual” NGLs total by dividing the total amount of propane recovered by the assumed content percent. In this case, 1,176 mbd (propane recovered) divided by 0.28, for an estimated total of 4,200 mbd of total NGL’s recovered, which is approximately 596 mbd more than the 3,604 mbd of total NGLs reported by EIA. The 596 mbd represents a pretty good approximation of the amount of ethane that was rejected for the month of February. The chart shows the estimated amount of ethane rejected over the past year utilising this method.
Since the EIA publishes this data to the Petroleum Administration for Defense Districts (PADD) and state level, this approach can be applied at that level. However, the more granular you get, the more important the assumptions become and the larger the margin for error.
Obviously this method is not perfect, but applied consistently, it can present a pretty clear picture of the historical trend.
Chris Hedge leads the ICIS Americas Analytics and Consulting team with 28 years of Crude Oil, Natural Gas, NGL and Petrochemicals experience and is known for developing and executing large, complex commercial projects. He has extensive experience in market and investment analytics and served as advisor to to the Chevron members of the ChevronPhillips Chemical Company Board of Directors. ICIS consultants enable businesses to address specific, long term challenges through providing robust proprietary data, on-the-ground expertise, and strategic insight. For information on consulting in the Americas, contact Chris.Hedge@icis.com