US ethane should remain volatile next year – Dow

Source: ICIS News

2018/11/08

HOUSTON (ICIS)--US ethane markets should remain volatile for a year before relenting some time in 2020 as more becomes available, an executive with Dow Chemical said on Wednesday.

The US has a lot of ethane, said Jack Broodo, business president of what will be the Feedstocks and Energy unit of Dow Chemical once it is spun off from DowDuPont.

Broodo made his comments during Dow's investor day presentation.

The problem is that midstream capacity has not grown fast enough to make that ethane available to the petrochemical industry, Broodo said.

A lot of the ethane remains in y-grade, he said. Y-grade refers to a mix of ethane, propane and other natural gas liquids.

Midstream companies are addressing the infrastructure constraints, and several have recently announced new fractionator projects.

Fractionators extract the individual components in y-grade.

Dow expects 700,000 bbl/day of new NGL pipelines through 2019 and 250,000 bbl/day of new fractionation capacity through the first quarter of 2019.

As these projects start up, more ethane should become available to the petrochemical industry.

For propane, Dow expects it will be long, and the propane surplus in the US should expand.

One of the reasons behind the length in the propane market is increased output from OPEC nations, Broodo said.

To handle this extra propane, Middle Eastern members of OPEC have exported the material to Asia. This has displaced shipments from the US.

Dow's crackers can use propane as a feedstock, so it benefits when supplies are long.

US natural gas is also long, and Dow expects it to remain so, Broodo said.

Dow has its own team of analysts that reviews the reserves and formations of the basins in the US, Broodo said. According to their analysis, every basin in the US can produce natural gas at a price below $3.50/MMBtu.

The market should tighten during the winter, but that pressure should relent as the weather becomes warmer, Broodo said.

Plus, production continues to increase as shown in the following chart.

(1) Source: Rystad Energy via Dow