US ethane surges to four-year high on demand, pipeline outage

HOUSTON (ICIS)–US ethane spot prices are trading at four-year highs, facing strong upward price pressure from the outage of the Mariner East pipeline, higher cracker demand and rising ethane exports.

Milk jugs are made from polyethylene, which is often derived from ethane in the US. Photo by Food and Drink/REX/ShutterstockMilkFood and Drink

Ethane was last heard trading at a four-year high of 32.75 cents/gal in-storage Mont Belvieu, Texas, on Thursday, the highest level since February 2014.

ICIS assessed ethane on Friday 1 June at 28.875 cents/gal.

The Mariner East pipeline transports about 70,000 bbl/day of ethane, propane and other natural gas liquids (NGL) from gas fields in western Pennsylvania to the marine terminals at Marcus Hook.

The pipeline was shut down in mid-May by Pennsylvania state officials, and it remains shut down with no timeframe for a resumption of operations, officials told ICIS on Thursday.

The pipeline outage has affected trade movements, as last week an ethane-transporting cargo vessel had been re-routed from loading at the Marcus Hook terminal and instead sent the US Gulf Coast for loading on the Houston Ship Channel.

Meanwhile, the ethane that would normally be shipped from the Mariner East terminal is stranded in Pennsylvania.

The vessel diversion is likely to continue, market observers said, echoing a similar situation two months ago as ethane and propane loading at Marcus Hook was shut for several weeks due to the previous Mariner East shutdown.

“This is going to be a repeat of what we saw in March and April with a number of ships diverted to the [US Gulf Coast],” said Peter Fasullo, consultant at En*Vantage.

With no loadings available for the foreseeable future from Marcus Hook, Fasullo said this puts pressure on the only available outlet for the petrochemical building block, the Houston Ship Channel, which is supplied by storage caverns in Mont Belvieu.

Compounding the price pressure is the imminent startup of a new ethane-consuming steam cracker and rising export demand as international buyers have also been loading ethane out of Morgan’s Point, Texas, the other US ethane-loading dock.

But as the basket of US NGLs shift from primarily domestic consumption to an export-driven market, market sources note that current economics could spark a new dynamic entering the US chemical landscape as onshore chemical plants have to compete for the same molecules as offshore ones.

Chemical producers in the US may not have accounted for such competition from their international counterparts, noted one USG-based NGL broker.

“[At these ethane prices], petchems won’t buy so sellers have to put it in ships to get rid of the stuff,” the broker said.

Since ethane’s primary demand source is at the chemical plant for ethylene production, there is little else it can go into, a trader said.

US natural-gas pipelines can accept a limited amount of ethane.

“What else can you do with ethane, and no I am not being rhetorical?” a trader said.

Photo above: Milk jugs are made from polyethylene, which is often derived from ethane in the US. Photo by Food and Drink/REX/Shutterstock

Focus article by Steven McGinn