INSIGHT: US chem feedstock costs hit pandemic lows as midstream buildout continues

HOUSTON (ICIS)–Prices for ethane, the predominant US feedstock used to make ethylene, have fallen this month to levels not seen since the pandemic, and they will likely remain depressed until colder weather arrives later in the year.

• Since falling below 12 cents/gal, ethane prices have risen by a few cents as some crackers have restarted.
• If another hurricane disrupts US exports of LNG, ethane prices could decline further with domestic natural gas prices.
• US ethane supplies should continue growing because of rising oil production.

INEXPENSIVE ETHANE SUPPORTS ELEVATED PE MARGINS
At the least, low ethane costs will help US polyethylene (PE) producers maintain operating rates at profitable levels regardless of the strength of demand.

US ethylene producers enjoy a cost advantage because they predominantly rely on ethane as a feedstock, and its price tends to rise and fall with that for natural gas. Much of the world relies on oil-based naphtha, which is usually more expensive.

From a purely cost perspective, lower ethane costs allowed for integrated PE margins to increase in July, and margins may rise again in August on further reductions in integrated costs, said Harrison Jacoby, director of PE for ICIS.

Because of the cost advantage of US producers, they have been able to maintain exports despite the global glut of PE.

Recently, PE exports from the US need to make up 45% of total sales for domestic producers to maintain operating rates of 90%, as domestic demand has been essentially flat for many years,  Jacoby said. Inexpensive feedstock allows them to be competitive in virtually every market globally, supporting high operating rates.

ANOTHER HURRICANE COULD LOWER ETHANE PRICES
One of the reasons why ethane prices fell so sharply is because Freeport LNG Development shut down its LNG operations in Freeport, Texas, because of Hurricane Beryl.

The site is a key LNG export terminal in the US, and the shutdown of its operations back up natural gas supply, which depressed prices for domestic natural gas and ethane.

The same scenario could repeat itself if another hurricane shuts down one of the LNG terminals on the coasts of Texas or Louisiana.

Hurricane season does not peak until later in August and September, and meteorologists are expecting an active year.

If a hurricane shuts down a cracker, that would reduce ethane demand, further depressing prices.

WEST TEXAS GAS PRICES HOVER AROUND ZERO
Another factor depressing ethane prices is excess natural gas at the Waha hub in west Texas.

The oil wells in west Texas also produce a lot of natural gas, and their output can overwhelm the pipeline capacity to ship it out of the region. Because of insufficient pipeline capacity, gas prices at the Waha hub have frequently fallen below zero.

Ethane is extracted from raw natural gas. If any ethane remains in the gas stream, it is sold as fuel. If that happens at Waha, then producers would be paying a counterparty to market their supply.

To avoid this, companies have been extracting as much ethane as possible.

Ethane extraction also frees up space in the pipelines in west Texas, allowing them to take away more natural gas out of the region.

ETHANE PRICES MAY RISE LATER IN THE YEAR
Waha prices will likely continue to hover around zero until the new Matterhorn Express pipeline starts up later this year.

The Matterhorn pipeline will allow more natural gas to be shipped out of west Texas. This will allow gas prices at Waha to climb, which boosts ethane’s value to fuel in the region, a factor that could raise prices.

As the year progresses, colder temperatures should increase demand for natural gas. That should raise gas prices, which would also push ethane prices higher.

The ICIS forecast for ethane reflects this. It shows ethane prices rising as the year progresses.

NEW PIPELINE TO TAKE AWAY MORE GAS FROM PERMIAN
The midstream industry is already planning another pipeline to take away additional natural gas out of the west Texas.

Targa, WhiteWater, MPLX and Enbridge have made a final investment decision (FID) to build the Blackcomb Pipeline, which will ship up to 2.5 billion cubic feet/day of natural gas from the Permian Basin in west Texas to the Agua Dulce area in south Texas. Operations should start in the second half of 2026.

NEW MIDSTREAM PROJECTS TO RAISE ETHANE SUPPLIES
The new Blackcomb pipeline is the latest new project announced by midstream companies.

They are continuing to build new natural gas processing plants. These plants remove impurities and natural gas liquids (NGLs) from raw natural gas.

The processed gas is then ready to be burned as fuel or exported as LNG.

The NGLs are sent to fractionators, which separate the individual components into purity products like ethane and propane.

The following table shows fractionators that were started up or that are being developed.

Company	Project	Type	Capacity	Units	Location	Startup
Energy Transfer	Frac IX	Fractionator	165,000	bbl/day	Mont Belvieu	Q4 26
Enterprise	Fractionator 14	Fractionator	195,000	bbl/day	Mont Belvieu	H2 2025
Gulf Coast Fractionators JV *	GCF Fractionator	Fractionator	135,000	bbl/day	Mont Belvieu	Q3 24
ONEOK	MB-6 Fractionator	Fractionator	125,000	bbl/day	Mont Belvieu	year end 24
Targa	Train 9 Fractionator	Fractionator	120,000	bbl/day	Mont Belvieu	in service
Targa	Train 10 Fractionator	Fractionator	120,000	bbl/day	Mont Belvieu	Q1 25
Targa	Train 11 Fractionator	Fractionator	150,000	bbl/day	Mont Belvieu	Q3 26

* GCF is restarting after being idled in January 2021. The JV is made up of Targa, Phillips 66 and Devon Energy
Source: corporate announcements

The following table shows natural gas processing plants that were started up or that are being development.

Company	Project	Type	Capacity	Units	Location	Startup
Delek	not available	Gas Plant	110	million cubic feet/day	Delaware	H1 2025
Durango Midstream	Kings Landing, Phase I	Gas Plant	200	million cubic feet/day	Eddy County, NM	Q4 24
Durango Midstream	Kings Landing, Phase II	Gas Plant	200	million cubic feet/day	Eddy County, NM	not available
Energy Transfer	Badger	Gas Plant	200	million cubic feet/day	Delaware	mid 25
Energy Transfer	Permian processing expansions*	Gas Plant	200	million cubic feet/day	Permian	Q4 24 to Q1 25
Enterprise	Orion	Gas Plant	300	million cubic feet/day	Midland	H2 25
Enterprise	Mentone West	Gas Plant	300	million cubic feet/day	Delaware	H2 25
Enterprise	Mentone West 2	Gas Plant	300	million cubic feet/day	Delaware	H1 26
Enterprise	Mentone 3	Gas Plant	300	million cubic feet/day	Delaware	in service
Enterprise	Leonidas	Gas Plant	300	million cubic feet/day	Midland	In service
MPLX	Preakness II	Gas Plant	200	million cubic feet/day	Delaware	in service
MPLX	Secretariat	Gas Plant	200	million cubic feet/day	Delaware	H2 25
MPLX	Harmon Creek II	Gas Plant	200	million cubic feet/day	Marcellus	in service
Targa	Greenwood	Gas Plant	275	million cubic feet/day	Midland	Q4 23
Targa	Greenwood II	Gas Plant	275	million cubic feet/day	Midland	Q4 24
Targa	Wildcat II	Gas Plant	275	million cubic feet/day	Delaware	Q2 24
Targa	Roadrunner II	Gas Plant	230	million cubic feet/day	Delaware	in service
Targa	Bull Moose	Gas Plant	275	million cubic feet/day	Delaware	Q2 25
Targa	Pembrook II	Gas Plant	275	million cubic feet/day	Midland	Q4 25
Targa	Bull Moose II	Gas Plant	275	million cubic feet/day	Delaware	Q1 26
Targa	East Pembrook	Gas Plant	275	million cubic feet/day	Midland	Q3 26

* GCF is restarting after being idled in January 2021. The JV is made up of Targa, Phillips 66 and Devon Energy
Source: corporate announcements

Insight article by Al Greenwood

Thumbnail shows PE pellets, which are made with ethylene. Image by ICIS