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US Ethane Outlook:US Ethane Outlook:Ethane: It’s Available and For SaleEthane: It’s Available and For Sale
Peter Fasullo
En*Vantage, Inc
Presented to the 15th Annual PFAA Conference
November 13, 2008
22
Our recent studies on ethane have indicated:Our recent studies on ethane have indicated:
Supply SideSupply Side
US ethane extraction starting to increase – rising gas production and new plants.US ethane extraction starting to increase – rising gas production and new plants.
Plant expansions will create an overhang of ethane extraction capability. Plant expansions will create an overhang of ethane extraction capability.
More logistical infrastructure (fractionation and distribution) is needed.More logistical infrastructure (fractionation and distribution) is needed.
Processors incurring more economic risks on ethane, unless demand increases. Processors incurring more economic risks on ethane, unless demand increases.
Demand SideDemand Side
Total US ethylene capacity not expected to increase. Contraction is highly Total US ethylene capacity not expected to increase. Contraction is highly
possible.possible.
Ethylene industry maximizing ethane cracking, but level is not enough. Ethylene industry maximizing ethane cracking, but level is not enough.
It will take time and capital to increase the capability to crack more ethane. It will take time and capital to increase the capability to crack more ethane.
Less co-product production could be an issue.Less co-product production could be an issue.
IntroductionIntroduction
33
Our Basic Message About Ethane
Gas Processors Ethylene Producers
Face challenges in managing excess ethane extraction capability and dealing with the consequences.
Have the opportunity to increase feedstock optionality by accessing greater ethane supplies.
Quick OverviewQuick Overview
55
Basic Facts About EthaneBasic Facts About Ethane
1.1. Ethane constitutes ~ 40% of the US NGL stream from gas processing.Ethane constitutes ~ 40% of the US NGL stream from gas processing.
2.2. Ethane is the most economically sensitive NGL and its extraction is Ethane is the most economically sensitive NGL and its extraction is discretionary.discretionary.
3.3. Ethane has only one major end use -- feedstock to produce ethylene.Ethane has only one major end use -- feedstock to produce ethylene.
4.4. About 50% of US ethylene is produced from ethane -- 5-yr avg. About 50% of US ethylene is produced from ethane -- 5-yr avg.
5.5. The amount of ethane cracked is a function of ethylene production. The amount of ethane cracked is a function of ethylene production.
6.6. But, ethane feedstock usage can be volatile when ethylene industry’s But, ethane feedstock usage can be volatile when ethylene industry’s operating rates are below 90%. operating rates are below 90%.
7.7. The incentive to extract ethane is only as good as the economic viability The incentive to extract ethane is only as good as the economic viability
of the US petrochemical industry and its ability to crack ethane.of the US petrochemical industry and its ability to crack ethane.
66
Ethane supply & demand fundamentals appear simple, but they are complex Ethane supply & demand fundamentals appear simple, but they are complex and volatile. Market range for ethane*: Low-- 475 MBPD; High-- 850 MBPDand volatile. Market range for ethane*: Low-- 475 MBPD; High-- 850 MBPD
Market drivers for ethane extraction and cracking:
Ethane Extraction Frac spreads Processing contracts Plant type Plant location Gas quantity & quality
Ethane Cracking
Ethylene business cycles
Cracker capacities & feedstock capabilities
Competing feedstocks
Ethylene co-products
Derivative Imports/Exports
Source: DOE, En*Vantage, Hodson; * Includes Ethane from Refining
US Ethane Supply & DemandUS Ethane Supply & Demand
5-Year Average5-Year Average(2003-2007)(2003-2007)
SupplySupply DemandDemand
SourceSource MBPDMBPD %% End UseEnd Use MBPDMBPD %%
ProcessingProcessing 667667 8989 EthyleneEthylene 737737 9898
RefiningRefining 8383 1111 Blending Blending into into
PropanePropane
1313 22
TotalTotal 750750 100100 TotalTotal 750750 100100
Overview of Ethane Supply & Demand
77
Key Drivers for Ethane Supply and DemandKey Drivers for Ethane Supply and Demand
Primary Drivers Influences
Natural Gas to Crude Price Ratio(Henry Hub Gas/WTI on a BTU basis)
ProcessingMargins
Ethane Feedstock Economics
Absolute Value of WTI Absolute spreads and price
Ethane to Crude Price Ratio Absolute Ethane Price.Ethane Frac Spreads.
Natural Gas Production & Quality Volume of ethane that can be extracted given the capacities and types of gas processing plants.
US Ethylene Production & Industry Configuration
Ethane consumption versus competing feedstocks.
Both being inversely related to gas to crude price ratio
88
Key Pricing Drivers for Ethane Supply & DemandKey Pricing Drivers for Ethane Supply & Demand
Gas-to-Crude Ratio
WTI Price
Gas BTU Discount to WTI
Ethane to Crude Ratio
Ethane Price
Ethane Frac Spread
(BTU Basis) $/Bbl $/BTU (Volume Basis) (MB $/gal) (MB $/gal)1998 87.6% $14.4 $0.32 54.3% $0.19 $0.0431999 71.8% $19.2 $1.00 61.3% $0.28 $0.1252000 81.3% $30.3 $0.96 55.9% $0.40 $0.1202001 87.3% $25.9 $0.47 53.3% $0.33 $0.0702002 74.2% $26.1 $1.14 42.0% $0.26 $0.0392003 102.0% $31.1 -$0.11 53.8% $0.40 $0.0352004 83.6% $41.3 $1.26 51.0% $0.50 $0.1132005 89.6% $56.4 $0.89 46.2% $0.62 $0.0382006 59.2% $66.1 $4.71 41.4% $0.65 $0.2102007 57.6% $72.5 $5.53 45.6% $0.79 $0.331
2008* 50.3% $114.4 $9.80 40.0% $1.08 $0.42310-Yr AVG 79.4% $38.34 $1.62 50.5% $0.44 $0.112* Jan - Aug 08
Key Pricing Metrics For Ethane
Source: DOE, En*Vantage, OPIS, ICE
99
Low Gas-to-Crude RatiosLow Gas-to-Crude Ratios
High Crude PricesHigh Crude Prices
Decent Ethane-to-Crude RatiosDecent Ethane-to-Crude Ratios
The The Planets Aligned Perfectly Planets Aligned Perfectly for Gas Processors to for Gas Processors to Maximize Ethane Profitability in ‘07 and 1Maximize Ethane Profitability in ‘07 and 1stst Half of ‘08. Half of ‘08.
High Ethane Frac SpreadsHigh Ethane Frac Spreads
High Ethane PricesHigh Ethane Prices
Two Factors to Consider:
1. Record high ethane prices and frac spreads would not have been possible if the US ethylene industry was doing poorly.
2. Additional ethane from newly constructed processing plants had not fully impacted the market yet.
Great for:
Keep Whole
% of Proceeds
1010
Concentration of Processing Plants and Regional Distribution of Ethane Extracted
US Gas Processing Industry
# of Plants: ~500 Inlet Gas Capacity: 65.5 BCFD Gas Throughput: 43.2 BCFD Industry Operating Rate: 66% Gas Production Processed: 80%
Regional Ethane Extraction*
LA Gulf Coast……….13% TX Gulf Coast….........6% TX Inland…………….34% Midcontinent…………12% New Mexico………….14% Rockies………………13% Upper Midwest……….6% Other…………………..2% * 5-year average
Source: DOE, En*Vantage, LPG Almanac
1111
NGL Extraction Will Continue to Shift Further Inland NGL Extraction Will Continue to Shift Further Inland
Regional Change in Total NGL and Ethane Extraction Volumesmax 2001 vs max 2008
(160)
(140)
(120)
(100)
(80)
(60)
(40)
(20)
0
20
40
60
80
100
Vo
lum
e C
ha
ng
e M
BP
D
Change in Total NGL Extraction Change in Ethane Extraction
TX Inland
TX Gulf Coast LA Gulf Coast
N. LA/Ark
New Mexico
Rockies
Mid-Continent
Upper Midwest Other
+10%
+15%
-30%
-34%
+57% +257%
-26%
-26%
+35%
-17%
-20%
+42%
-4%
+2%+21%
-21%
-93%-4%
Source: DOE and En*Vantage
Outlook For Ethane ExtractionOutlook For Ethane Extraction
1313Source: EIA and En*Vantage
Ethane Extraction From Processing Can Be Volatile Ethane Extraction From Processing Can Be Volatile
Total Ethane Extraction From US Gas Processing(Data for Jan '00 thru Aug '08)
250
300
350
400
450
500
550
600
650
700
750
800
850
Jan-00
Jul-00
Jan-01
Jul-01
Jan-02
Jul-02
Jan-03
Jul-03
Jan-04
Jul-04
Jan-05
Jul-05
Jan-06
Jul-06
Jan-07
Jul-07
Jan-08
Jul-08
NG
L E
xtr
actio
n M
BP
D .
High Gas-to-Crude Ratios
1414Source: EIA and En*Vantage
Prior to ‘07 Ethane Extraction Capability was Declining Prior to ‘07 Ethane Extraction Capability was Declining
Range of US Ethane ExtractionMBPD
300
400
500
600
700
800
2000 2001 2002 2003 2004 2005 2006
Min C2 Extraction AVG C2 Extraction Max C2 Extraction
1515Source: EIA and En*Vantage
Major Changes in Regional Proved Natural Gas Reserves - 2000 to 2007(Wet after Lease Seperation)
(-49%) (-12,883)
(-36%) (-2,313)
(-12%)(-1,455)
(-25%) (-1434)
(-4%) -501
389 (+10%)
1991 (+45%)
2,499 (+56%)
3,063 (+32%)
3,093 (+93%)
5,350 (+84%)
5,641 (+39%)
11,643 (+107%)
13,685 (+80%)
22,244 (+533%)
(20,000) (16,000) (12,000) (8,000) (4,000) 0 4,000 8,000 12,000 16,000 20,000 24,000Billion Cubic Feet
Federal G.O.M………
Texas (Barnett Shale)……………………………………………………
Wyoming……………………………………………………………………
Colorado……………………………………………………………………
Oklahoma………………………………………………………………….
North Louisiana…………………………………………………………..
East Texas…………………………………………………………………
Utah…………………………………………………………………………
New Mexico (San Juan)…………………………………
Texas Panhandle…………………………………………………………
New Mexico (Permian)……………………………………………………
West Texas (Permian)…………………………………………………..
South Texas…………………………………………
South Louisiana………………………………
Kansas (Hugoton)…………………………………
Gas Reserve Additions in Key Processing Regions
1616Source: EIA and En*Vantage
Gas Production is UP 11% or +5.8 BCFD since 2006.
US Natural Gas Production versus Rig Count(Average Monthly Rig Count versus Marketed Gas Production)
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
Ma
rke
ted
Ga
s P
rod
uctio
n (
BC
FD
)
100
200
300
400
500
600
700
800
900
1000
1100
1200
1300
1400
1500
1600
Ro
tary
Ga
s R
ig C
ou
nt
Marketed Natural Gas Production Gas Rig Count
Hurricanes
1717
Recently Completed & Announced Plant Additions ~6.8 BCFD. Rockies-- 54%; TX Inland-- 29%; MidCont-- 11%; G.C.-- 6%
Region Year
Processing Capacity
(MM CFD)
NGL Production Capabilty (MBPD)
Ethane Extraction Capability (MBPD)
Rockies 2007 1100 52 26Texas Inland 2007 825 51 20Mid-Continent 2007 0 0 0Gulf Coast 2007 0 0 0
Total 2007 1925 103 46Rockies 2008 1520 71 35Texas Inland 2008 510 34 13Mid-Continent 2008 360 28 11Gulf Coast 2008 295 17 7
Total 2008 2685 106 67Rockies 2009 700 33 16Texas Inland 2009 655 48 19Mid-Continent 2009 380 31 16Gulf Coast 2009 100 7 3
Total 2009 1835 58 54Rockies 2010 350 30 15Texas Inland 2010 0 0 0Mid-Continent 2010 0 0 0Gulf Coast 2010 0 0 0
Total 2010 350 30 15Rockies Total '07-'10 3670 185 93Texas Inland Total '07-'10 1990 132 53Mid-Continent Total '07-'10 740 59 27Gulf Coast Total '07-'10 395 24 10
Grand Total 6795 401 182*Assumes 100% utilization rates
Additions to US Gas Processing Capacity and NGL Production Capability*
Source: En*Vantage and Company Announcements
1818
Trunkline is building a 1.050 BCFD NGL extraction plant at its Lake Trunkline is building a 1.050 BCFD NGL extraction plant at its Lake Charles LNG Terminal, completion in late 2008/early 2009.Charles LNG Terminal, completion in late 2008/early 2009.
Depending on the quality of LNG being imported, anywhere between 18 Depending on the quality of LNG being imported, anywhere between 18 MBPD to 48 MBPD could be extracted.MBPD to 48 MBPD could be extracted.
Most likely, the Trunkline LNG terminal will process Nigerian LNG with Most likely, the Trunkline LNG terminal will process Nigerian LNG with an average BTU content of 1150 +/- 25.an average BTU content of 1150 +/- 25.
That would imply an NGL recovery rate of at least 39 MBPD, with That would imply an NGL recovery rate of at least 39 MBPD, with ethane extraction about 24 MBPD.ethane extraction about 24 MBPD.
In Addition to Incremental NGLs from Processing, One In Addition to Incremental NGLs from Processing, One USGC LNG Terminal will have NGL Extraction CapabilityUSGC LNG Terminal will have NGL Extraction Capability
1919Source: EIA and En*Vantage
Announced Plants Boosting Ethane Extraction CapabilityAnnounced Plants Boosting Ethane Extraction Capability
Forecast of US Ethane Extraction Capability
500
550
600
650
700
750
800
850
900
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
MB
PD
500
550
600
650
700
750
800
850
900Ethane Extraction from Existing Plants as of 2006 Ethane Extraction From Announced Plants
Level of C2 Extraction Capability Predicted for 2007 was 756
778
Level of C2 Extraction Capability Predicted for 2008 was 817
803
Did not include C2 extracted from LNG at Trunkline's LC terminlal
2020
Another 0.5 - 1 BCFD of cryo-plant capacity could be built in next few years. Represents 30 to 60 MBPD of NGLs of which 12 to 24 MBPD is ethane.
Potential Production Change in Growing Gas Processing Basins2006 to 2015
0.0
2.0
4.0
6.0
8.0
10.0
12.0
Billio
n C
FD
6.8 BCFD of cryogenic capacity just completed or under construction.
Potentially another ~3.4 BCFD of incremental gas is rich of enough to be processed over the next 10 years.
Source: EIA, Enterprise, Energy Transfer, Williams, Broadwalk
+4.9 BCFD
+1.7 BCFD
+1.0 BCFD +1.0 BCFD +1.0 BCFD+0.6 BCFD
Financial Crisis Could Delay Unannounced Plants
Outlook For US Ethane DemandOutlook For US Ethane Demand
2222
Low gas-to-crude ratios in the US made US ethylene producers more Low gas-to-crude ratios in the US made US ethylene producers more competitive globally.competitive globally.
The US ethylene industry’s ability to shift to ethane and E/P gave it a The US ethylene industry’s ability to shift to ethane and E/P gave it a competitive edge over heavy feedstock crackers in Europe and Asia.competitive edge over heavy feedstock crackers in Europe and Asia.
Although the US economy was slowing, the low US dollar created an Although the US economy was slowing, the low US dollar created an export market for US petrochemicals. export market for US petrochemicals.
In 2007 and 1In 2007 and 1stst Half of 2008, US ethylene operating rates were 88.5% Half of 2008, US ethylene operating rates were 88.5% and 87.3%, respectively. and 87.3%, respectively.
However, those US ethylene producers leveraged to heavy-feedstocks However, those US ethylene producers leveraged to heavy-feedstocks suffered in the high crude price environment during Q1 and Q2 ‘08. suffered in the high crude price environment during Q1 and Q2 ‘08.
Fairly Good Business Environment for the US Fairly Good Business Environment for the US Ethylene Industry in ’07 & 1Ethylene Industry in ’07 & 1stst Half of ’08 Half of ’08
2323
Growth in US Ethylene Production and Capacity has Growth in US Ethylene Production and Capacity has Basically Stagnated Over the Past 5 yrs. Basically Stagnated Over the Past 5 yrs.
US Ethylene Capacity versus Production(Billion Pounds per Year)
0
10
20
30
40
50
60
70
80
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 H108
Bill
ion
Lb
s/Y
ea
r
0
10
20
30
40
50
60
70
80
Ethylene Capacity Ethylene Production
During the 1990's U.S. ethylene production and capacity were growing at a rate 1.5 times GDP.
During the 2000's U.S. ethylene production and capacity have basically flatlined.
Source: En*Vantage, Hodson, CMAI
2424
¹ Capacity excludes plants that are mothballed; Source Hodson and En*Vantage
100.0%60.1100.0%62.2Total Effective Capacity
5.3%3.214.4%8.9Heavy Feed Crackers
45.1%27.150.5%31.4Flexi Feed Crackers
38.6%23.228.0%17.4E/P Crackers
11.0%6.67.2%4.5Purity Ethane Crackers
%Billion Lb/Yr%Billion Lb/Yrof Ethylene Plants
20002007Basic Types
Effective Capacity¹
Shift in US Ethylene Capacity
¹ Capacity excludes plants that are mothballed; Source Hodson and En*Vantage
100.0%60.1100.0%62.2Total Effective Capacity
5.3%3.214.4%8.9Heavy Feed Crackers
45.1%27.150.5%31.4Flexi Feed Crackers
38.6%23.228.0%17.4E/P Crackers
11.0%6.67.2%4.5Purity Ethane Crackers
%Billion Lb/Yr%Billion Lb/Yrof Ethylene Plants
20002007Basic Types
Effective Capacity¹
Shift in US Ethylene Capacity
Over the Past Few Years, US Ethylene Capacity Over the Past Few Years, US Ethylene Capacity has Shifted More to Flexi and Heavy Feed Crackers.has Shifted More to Flexi and Heavy Feed Crackers.
Plus, 21% of US ethylene plant capacity is aging (35 years and older) and this capacity represents 33% of total ethane consumption.
2525
Cracking of Gas Processors’ Ethane
U.S. Ethylene Feedstock Consumption - MBPD(Jan-00 to Aug-08)
0
100
200
300
400
500
600
700
800
900
Ind
ivid
ua
l F
ee
d V
olu
me
s M
BP
D…
..
0
100
200
300
400
500
600
700
800
900
Ethane (from gas processors)
Propane
Heavy Feeds
N-Butane
Source: Hodson Reports and En*Vantage
Hurricanes
High Gas-to-Crude Ratio Environment
Low Gas-to-Crude Ratio Environment
8 Year Average is 670 MBPD. Peaked at 800 MBPD in ’01. High in ’08 was 745 MBPD.
2626
The Amount of Ethane Cracking Positively Correlates with the Amount of Ethylene Produced.
Ethylene Production Rate
Ethylene Operating Rate
Min Ethane Cracking
Avg Ethane Cracking
Max Ethane Cracking
Billion Lb/Yr % MBPD MBPD MBPD
50 80% 480 598 680
52 84% 530 629 710
54 87% 580 660 740
56 90% 620 691 770
58 93% 670 722 800
60 96% 710 753 830
62 100% 750 784 860
Call on Ethane from Gas ProcessingEthane Cracking as a Function of Ethylene Production
Source: Hodson and En*Vantage.
2727
US Ethylene Production Forecast ScenariosUS Ethylene Production Forecast Scenarios
US Ethylene Capacity versus Ethylene Production(Billion Pounds per Year)
30
35
40
45
50
55
60
65
70
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Bill
ion
Lb
s/Y
ea
r
US net exports of ethylene products declines as foreign production increases
Historical Ethylene CapacityEthylene Capacity Forecast
High Case: 3.5% AGRHistorical Ethylene Production
Historical Data: CMAI, HodsonForecast: En*Vantage
Low Case: 1.5% AGR
2828
High Likelihood That an Ethane Extraction Overhang High Likelihood That an Ethane Extraction Overhang Will Continue Through 2012.Will Continue Through 2012.
US economy grows at 3%/yr.
Max C2 Cracking
US economy stagnates and an ethylene surplus develops worldwide
Ethane Extraction Capability versus Ethane Demand
500
550
600
650
700
750
800
850
900
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
MB
PD
500
550
600
650
700
750
800
850
900
Max Ethane from Existing Plants Prior to '07 Max Ethane from Announced Plants Ethane from LNG
Forecasted range of demand for ethane from gas processing
Ethane Extraction Capability
HISTORIC MAXIMUM ETHANE CRACKING ABILITY
Historical Demand for Ethane from Processing
Additions came in Q4 07
Source: DOE, En*Vantage, Hodson
ImplicationsImplications
3030
Lower Ethane Values Relative to Crude (WTI)Lower Ethane Values Relative to Crude (WTI)
Ethane Price Relationship to WTI(On a $/Bbl Basis)
20%
30%
40%
50%
60%
70%
80%
90%
20%
30%
40%
50%
60%
70%
80%
90%
Long-Term Avg 49%
Source: DOE, En*Vantage, OPIS, ICE
3131
Greater Ethane Volumes and Poor Economy Greater Ethane Volumes and Poor Economy Pressuring Ethane Frac SpreadsPressuring Ethane Frac Spreads
Ethane Frac Spreads Mt. Belvieu Ethane minus Henry Hub Gas
(Cents per Gallon)
(20)
(10)
0
10
20
30
40
50
60
70
Eth
an
e F
rac S
pre
ad
(C
en
ts/G
allo
n)
-20
-10
0
10
20
30
40
50
60
70
Winter ‘95/’96Winter ‘00/’01
'05 Hurricanes
Asian Crises/Crude Price Collapse
Econmomic Recession/ Crude Collapse Winter/Spring '03
Record High Crude Prices & Low Gas-to-Crude Ratios
Average 10.6¢/gal
Over the past 206 months (~17 yrs), ethane frac spreads have traded 66% of the time below 10¢/gal and have traded 30% of the time below 5¢/gal.
Source: DOE, En*Vantage, OPIS, ICE
3232
Ethane Overhang Will Affect Gas Processors DifferentlyEthane Overhang Will Affect Gas Processors Differently
High Exposure to Economic RiskHigh Exposure to Economic Risk Lower Exposure to Economic RiskLower Exposure to Economic Risk
Processors with the following:Processors with the following: “ “Keep Whole” ContractsKeep Whole” Contracts No ability to re-inject ethaneNo ability to re-inject ethane Little or no integration along the NGL Little or no integration along the NGL
value chain. value chain. High T&F feesHigh T&F fees High Fuel Usage & CostsHigh Fuel Usage & Costs Little or no gas basis offset Little or no gas basis offset Low value market for ethaneLow value market for ethane Little integration with gas producerLittle integration with gas producer
Processors with the following:Processors with the following: POP ContractsPOP Contracts Ability to re-inject ethaneAbility to re-inject ethane High degree of integration along High degree of integration along
the NGL value chain. the NGL value chain. Low T&F feesLow T&F fees Low Fuel Usage & CostsLow Fuel Usage & Costs Wide gas basis offset Wide gas basis offset High value market for ethaneHigh value market for ethane Integration with gas producerIntegration with gas producer
3333
Wellhead Production
Gas Gathering & Processing
NGL Transport
NGLFractionation
NGLStorage
ProductDistribution
Opportunities and Bottlenecks Occurring Across NGL Value Chain
Greater Gas Production Volumes
Greater Need for Long Haul NGL Takeaway Capacity.
More Opportunities for Gathering & Processing.
Greater Need for Full Fractionation Capacity.
Storage Plays a Greater Role in Balancing Supply & Demand
Greater Need for More Ethane Distribution to Petro- Chemicals
Keeps Gas-to-Crude Ratios Low
Expansions are being completed: - MAPL - Overland Pass - Sterling - West Texas P/L - Arbuckle
Belvieu Fracs at capacity.
More Barrels being diverted to Louisiana
More Capacity may be needed
3434
US Ethylene Industry Faces Challenges and US Ethylene Industry Faces Challenges and OpportunitiesOpportunities to Increaseto Increase Ethane ConsumptionEthane Consumption
Some heavy-feed crackers are isolated from large ethane distribution systems. Some heavy-feed crackers are isolated from large ethane distribution systems. Additional ethane distribution is needed to access these plants.Additional ethane distribution is needed to access these plants.
Midstream companies are reluctant to bear the full risk in building more logistics Midstream companies are reluctant to bear the full risk in building more logistics to handle ethane. (to handle ethane. (The Chicken and Pig FableThe Chicken and Pig Fable))
Maximizing ethane cracking at some heavy-feed ethylene plants may require Maximizing ethane cracking at some heavy-feed ethylene plants may require investments to retool process equipment. investments to retool process equipment.
Ethylene producers need to be convinced that ethane supplies will last.Ethylene producers need to be convinced that ethane supplies will last.
Co-product production could suffer and petrochemical companies will need to Co-product production could suffer and petrochemical companies will need to find ways to meet downstream co-product requirements.find ways to meet downstream co-product requirements.
Economic slowdown plus more ethylene plants worldwide could dampen Economic slowdown plus more ethylene plants worldwide could dampen enthusiasm to make investments to access and handle more ethane. enthusiasm to make investments to access and handle more ethane.
Ethane cracking capability could increase by another 50 to 75 MBPD at existing plants, but….
3535
Is There A Happy Ending?Is There A Happy Ending?
Cooperation and sharing of risks between midstream and petrochemical Cooperation and sharing of risks between midstream and petrochemical companies is required to increase ethane distribution and demand.companies is required to increase ethane distribution and demand.
Current economic recession may delay aggressive actions by both parties. Current economic recession may delay aggressive actions by both parties.
In the meantime, gas processors will need to prepare for a greater In the meantime, gas processors will need to prepare for a greater frequency of marginal ethane extraction economics.frequency of marginal ethane extraction economics.
Careful study and planning is required by individual processors looking to Careful study and planning is required by individual processors looking to build that next cryogenic processing plant.build that next cryogenic processing plant.
Although additional US ethylene capacity is unlikely, petrochemical Although additional US ethylene capacity is unlikely, petrochemical companies have the opportunity to increase feedstock optionality by taking companies have the opportunity to increase feedstock optionality by taking advantage of ethane’s growing availability and lower valuation relative to advantage of ethane’s growing availability and lower valuation relative to competing feedstocks. competing feedstocks.