Decision On New Houston Ethylene Export Terminal Anticipated By Year-end

As the second half of 2017 begins, decision time looms closer for the two proposed ethylene export terminals for the U.S. Gulf Coast.

The rival developers are a contrast in capabilities: Odfjell is a global leader in tankers and terminals; Enterprise Products is a dominant midstream and downstream player in North America with vast capital resources. Of the two, Odfjell has been more forthcoming about its plans, intending to make a decision by the end of this year and, if a go, to have the facility in service by year-end 2019.

Early in April, Enterprise said it had “customer commitments supporting two expansion projects that will further develop [our] ethylene infrastructure. Enterprise is repurposing a large, high-capacity ethylene storage well at its Mont Belvieu, Texas, complex. Following completion of the project, which is expected as early as third-quarter 2018, the 5.3-million-barrel cavern will be able to inject/withdraw ethylene at a rate of 2,000 barrels per hour, expandable to 4,000.”

Further supporting its ethylene capabilities, Enterprise is building a new 24-mile, 12-inch diameter ethylene pipeline from Mont Belvieu to Bayport, Texas, with the potential to connect both producing and consuming sites south of the Houston Ship Channel to Mont Belvieu. The ethylene pipeline will be routed through Enterprise’s ethane export terminal at Morgan’s Point, which is where the proposed ethylene export facility would be.

“We continue to evaluate the possibilities,” said an Enterprise official. “We have not made a decision. That will depend on customer commitments.”

Odfjell is less circumspect.

“This is still just a project but it would be one of our largest and we are very much committed to making it happen,” Yann Bigot, director of commercial and business development with Odfjell Terminals in Houston told Hart Energy. “We hope to make a final investment decision in the second half of 2017 and would hope to be shipping ethylene by the end of 2019.”

The economics behind the initiative to export ethylene are simple. With the shale gas bonanza in North America, there is a glut of ethane. Based on that now inexpensive and plentiful feedstock, there is a building binge underway for steam crackers. Ethylene capacity in North America is expected to grow by more than one-third from about 32 million mtpa in 2016 to more than 44 million mtpa by 2026.

To be sure, there is a commensurate boom in derivatives production, notably polyethylene, primarily for export. In recent years there has also been interest in exporting ethane. In addition to Enterprise at Morgan’s Point, there is also a terminal to export ethane and other NGL near Philadelphia that is operated by Sunoco Logistics.

Ineos led the charge by several European olefins and polymers producers to import North American ethane as a lighter cracker feed than the naphtha that is prevalent in Europe. The deepsea ethane trade has not so far lived up to expectations, so there is ample merchant tanker capacity available for such ethylene trade as could develop. The Odfjell tanker fleet does include a few gas carriers capable of hauling ethylene, but the company primarily operates parcel tankers than handle petrochemicals and clean refined products.

Despite all of that there is still a robust business case for ethylene exports from North America. Industry sources suggested that new ethylene production in the U.S. will exceed domestic demand by as much as 40%.

“There are four drivers,” said Bigot at Odfjell. “First, cracker operators don’t want to have to curtail operations, they want to run at high efficiency. That means they need options for moving their ethylene and exports provide a safety valve. Second, there is a growing market for those exports. The Middle East is exporting less, and Japan and Korea are becoming less competitive. There is definitely a need for new waterborne ethylene.”

Given the global consolidation among major olefins and polymers producers, there is also the frequent case that the same parent company could be long ethylene in one region, and short in another, Bigot noted. “Paper swaps with other producers are possible, but there is always the price differential to consider.” That differential in the commercial market is the fourth driver. “There is always the arbitrage,” Bigot stated. “Today it is favorable from the U.S. to both Europe and Asia.”

The proposed Odfjell ethylene terminal would have an annual volume of 750,000 mtpa, and a loading rate of between 600 and 1,000 tons per hour. It would also have a dedicated storage tank to facilitate that quick loading. Although Enterprise has not disclosed any details, it is expected that their plans are roughly on the same order of magnitude.

There is already an existing ethylene export terminal in Galena Park, Texas, on the Houston Ship Channel. It was originally built by Shell and Chevron as an import facility. It is currently operated by Targa Resources and contracted to Mitsubishi Chemical.