There are certain things that endure for so long that there’s a tendency to automatically assume they will continue in that state of affairs. It becomes a given that this particular condition will persist, and little thought is typically given to testing that assumption.

As commodity prices have slumped—led by the protracted deterioration in crude prices over the last 20 months or so—little attention has been paid in some quarters to the topic of ethane or, perhaps more precisely, ethane rejection.

Count me in those quarters.

But for those who can look beyond the daily fl uctuations and take a longer view, a more optimistic outlook is emerging. At Tudor, Pickering, Holt & Co. (TPH), for example, analysts have said that they could potentially see the U.S. market turning short ethane in the second half of 2017.

And if that proves correct, it will provide a fi nancial boon for those along the hydrocarbon value chain: not only natural gas producers, who will once again be paid for having ethane recovered from their gas streams, but also many in the midstream sector, whether processors, shippers on domestic pipelines or exporters to overseas markets.

The ATEX Pipeline, for example, is identified by TPH as infrastructure that should pay its way on a much greater scale in 2017. Since starting up in 2014, the ethane-dedicated pipeline has been “a heavy anchor weighing down a number of Northeast E&Ps,” as transportation costs have barely been covered by the sales price of ethane at the Mont Belvieu, Texas, NGL hub, TPH analysts acknowledged.

“While this will likely remain the case for the next 12 months, we do potentially foresee the U.S. becoming short ethane in the second half of 2017, forcing prices higher on the Gulf Coast,” TPH added.

Of course, the big picture is the prospect of production rolling over—helped by the gas rig count falling to just 87 rigs in late April vs. 222 rigs a year earlier—as long-awaited and very significant amounts of petrochemical capacity and export infrastructure come online.

In March of this year, the fi rst waterborne ethane cargo left the Marcus Hook terminal on the Delaware River near Philadelphia on its way to Europe. Although the ethane market has previously been connected to customers in Canada via the Mariner West Pipeline, the Mariner East Pipeline carrying ethane to Marcus Hook marks the “the fi rst true link to global markets, with INEOS Group Holdings SA using Marcellus/Utica-sourced ethane to feed crackers in both Scotland and Norway,” observed TPH analysts.

Further tightening of the domestic ethane market may be in store with the commissioning of the Gulf Coast export terminal of Enterprise Product Partners LP. In addition to Marcus Hook, estimated to have an export capacity of 40,000 to 45,000 barrels per day (bbl/d), the new Enterprise facility is expected to have a combined operating rate of 200,000 bbl/d across two docks. The facility, with 90% of capacity under long-term contracts, is scheduled to be completed in the third quarter.

Analyst estimates show the Enterprise Gulf Coast terminal taking overall ethane export capacity to Canadian and overseas markets to around 350,000 bbl/d.
But the main factor on the demand side is the continuing growth of the petrochemical sector, most of which is on the Gulf Coast. TPH estimates that new ethane cracker capacity coming on by year-end 2017 will add over 400,000 bbl/d of demand.

RBC Capital Markets analyst Elvira Scotto counted 600,000 bbl/d of incremental ethane consumption from announced petrochemical facilities, of which about 70% is currently scheduled to be online by the end of 2017. She noted a number of other cracker projects located mainly outside of the Gulf Coast that could add to overall ethane demand.

“It looks like the glut of excess ethane may fi nally be coming to an end,” commented TPH. “After three years on the sideline going quietly into the gas stream, market fundamentals (are) setting up for a balanced market that could swing short if petrochemical startups pre-empt a production rebound.”

“With over 400,000 bbl/d of petrochemical projects and nearly 300,000 bbl/d of contracted exports set to come online by year-end 2017, incremental demand should incent full extraction and may still leave the market looking for more.”

Let’s hope so. Bring it on!

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