It would be unfair to call the current approach to handling U.S. ethane an exit strategy, but there is no doubt that the record production levels caused by the development of shale plays requires volumes to “escape” the domestic market.

Though exports of LNG, LPG and condensate have received most of the public’s attention, the exporting of domestic ethane might have the largest impact on any single U.S. energy market in the coming years.

While other NGL markets have experienced price improvements in the past two-plus years, ethane prices have consistently traded in the 20 cents per gallon (gal) or lower threshold since the fall of 2012. Some of the downturn is related to cracker turnarounds and expansions, but the primary challenge is the vast amounts of ethane being produced and put into storage.

Light in the tunnel

Though the ethane market has been unprofitable for years, margins turned theoretically positive at both the Conway, Kan., and Mont Belvieu, Texas, trading hubs in late January/early February for the first time in more than year. They had been negative for most of the past two-and-a-half years—but there is light at the end of the tunnel.

The impact of long-term ethane rejection throughout the country is starting to pay dividends as ethane prices have held firm throughout the downturn in crude, gas and other liquids prices.

“The amount of ethane being rejected is certainly helping to balance the market,” Peter Fasullo, principal at En*Vantage Inc., a Houston-based advisory and energy investment firm, told Midstream Business. “We’ve seen inventory declines over the last few months, and I think these declines are going to continue for the next several months.”

Though exports will become more important in the years to come, Warren Wilczewski, industry economist with the U.S. Energy Information Administration’s office of petroleum, natural gas and biofuels analysis, told Midstream Business that rejection is currently serving as the primary source of balance in the market.

“When it comes to ethane, rejection is the balancing mechanism at the moment,” Wilczewski said. “The question, therefore, is not whether rejection has had an impact on balancing the market, but rather to what extent the mismatch between the rate of supply growth and demand growth drove producers to reject ethane into pipeline gas in order to balance the market,” he said.

Given the size of this rejection—about 500,000 barrels per day (bbl/d)—there is still much more work to do to achieve true market equilibrium as this production is still more than what the domestic petrochemical industry can consume.

Ethylene demand

Even as the U.S. petrochemical and manufacturing industries increase demand for ethylene, and cracking capacity has been operating at near or full rates since the end of 2014, the industry will not achieve balance until 2018, according to Fasullo. This is when new crackers are will be brought online and will increase capacity by 600,000 bbl/d. The increase in export capacity and optionality between now and 2016 will be nearly as important an event for the market.

For decades, the U.S. has been a net importer of hydrocarbons, but the shale revolution is quickly changing this landscape.

The first talk of hydrocarbon exports was of LNG, though these terminals, which take years and billions of dollars to build, or to turnaround existing facilities, are just preparing to come online now. Instead, the first U.S.-produced hydrocarbon to really dip its toe into the export market was propane.

Propane was experiencing a similar storage overhang in the fall of 2013 to the one currently experienced by the ethane market. The propane market was quickly balanced and, for a time, undersupplied in the winter of 2014 with frigid temperatures around the U.S. There was also increased demand from Asia and Europe that saw export volumes rise.

While exports will have a major impact on ethane prices, there is little chance that ethane exports will have a similar ramp-up in value since propane can be exported both by pipeline as well as very large gas carrier ships to terminals around the world. Though ethane can also be transported in these ways, there aren’t as many import terminals that can accept waterborne exported ethane as can LPG. Consequently, the primary destination for ethane exports will be to Canada via pipeline.

Between Sunoco Logistics’ Mariner West pipeline from Houston, Pa., to Sarnia, Ontario, and Pembina Pipeline Corp.’s Vantage pipeline from Tioga, N.D., to Alberta, there will be more than 100,000 bbl/d of ethane shipping capacity added from the U.S. to Canada.

“I think waterborne exports are going to start off niche since very few crackers in Europe or Asia can crack ethane. It will require those crackers along the coast that have the economies of scale that can spend capital to build ships and the logistics to receive the ethane and revamp their plants,” Fasullo said.

The infrastructure problem

“There’s just so much infrastructure that has to be built for waterborne ethane exports to grow,” he continued. “So it’s not going to be as extensive as LPG exports anytime soon. I’d be very surprised if the marine export market for ethane is above 250,000 bbl/d by 2020. We could easily be above 1 million bbl/d of propane exports by that time.”

While European ethane exports will come online first, the Asian market may be larger despite the longer journey since companies are considering using ethane as both a fuel and a petrochemical feedstock. In addition, India’s Reliance Industries Ltd. is building a world-scale ethane cracker at its Jamnagar petrochemical complex in Gujarat. The company will ship 1.5 million tons per year of ethane from its U.S. shale joint ventures in the Marcellus and Eagle Ford to the facility.

The size of the Marcellus-Utica means that ethane extraction from the region could grow up to 600,000 bbl/d by 2020, according to Fasullo. This would provide enough ethane to support both waterborne and pipeline exports by itself.

The companies with the most to gain from the nascent ethane export market are Sunoco Logistics and Enterprise Products Partners LP, which are both set to begin operations of waterborne ethane export terminals in the next two years.

Mariner East

Sunoco Logistics’ Mariner East project includes a 70,000 bbl/d ethanepropane terminal at its Marcus Hook, Pa., complex along the Delaware River outside of Philadelphia. This terminal has been shipping LPG since secondquarter 2014 and is scheduled to begin shipping both ethane and propane in the second-half of this year.

Enterprise Products Partners is building the largest ethane export terminal in the world with a 240,000 bbl/d capacity along the Houston Ship Channel. The effective capacity is 200,000 bbl/d, the 240,000 bbl/d capacity is the loading rate if ships moved around the clock. The project is scheduled to come online in the third quarter of 2016.

Similar to pipelines, both projects are already nearly fully subscribed for capacity on long-term contracts. In addition, Enterprise’s ATEX Pipeline will provide 190,000 bbl/d capacity to transport ethane from the Marcellus to the Gulf Coast once it is at full capacity in 2018. The pipeline began running at reduced capacity in early 2014; however, a rupture on the line in January caused Enterprise to run the system at reduced pressure and rates.

The 2018 time frame for the market to rebalance depends upon crude prices returning to the $80 to $100 per bbl level, according to Fasullo.


Sunoco Logistics’ Mariner East project includes a 70,000 barrel per day ethane/propane terminal at its Marcus Hook, Pa., complex along the Delaware River outside of Philadelphia. Source: Sunoco Logistics Partners LP

“If crude prices were to stay at current levels for an extended period of time, then it becomes real challenging to try to forecast exactly when things get balanced. Drilling would drop dramatically, which could affect the amount of gas that plants process, therefore the amount of ethane that can actually come on the market. On the other side of the coin, you don’t have the economics to export ethane in a very low crude price environment. It’s a little bit more challenging to know what side is going to get hurt the most, whether it’s going to be supply side or the demand side,” he said.

Wilczewski added that there are other factors to consider in terms of market rebalancing once this new infrastructure is brought online, but that price would indeed be the deciding factor.

Ethane as a feedstock

“The ability for the market to rebalance will depend on a variety of factors, including the desirability of ethane as a feedstock by the end of this time period,” Wilczewski said. “In addition, there are a wide range of available options for ethane recovery: plant-level decisions to recover more and reject less ethane, the construction of infrastructure to bring ethane currently stranded to the consuming region, investment in more deep-cut plants capable of higher ethane recovery rates and development of resources that yield higher ethane fractions. All of these options are highly dependent on ethane economics. Therefore, a rebalancing can take place at various levels of supply and demand and is highly dependent on price.”

In the years ahead, nearly every NGL will look to exports of some kind in order to bring equilibrium to their market. This will usher in the largest change since the shale revolution as U.S. energy markets have traditionally been disconnected from global markets. Moving toward a system that is increasingly international in scope is a huge change as balance will depend on West Texas Intermediate and Brent crude prices and arbitrage prices in the LNG, LPG and ethane markets.

“We need to get back to a certain level where our shale plays are consistently turning out supplies, that we are a lower cost supplier of energy than what you see in Europe or in Asia, so that arb is wide enough that it maximizes our export capability,” Fasullo said.

The development of new supply basins serving as the primary source for ethane, specifically the Marcellus-Utica, creates a new challenge for margins as transportation and fractionation (T&F) fees are also increasing. This will require prices to be higher to reach positivity.

Gulf Coast prices

“As much as 40% of NGL supply could be sourced from the Marcellus-Utica, Bakken and Rockies,” Fasullo said. “These are the plays that are located the farthest from the market, and they have very high T&F fees that could be between 20 cents and 30 cents per gal,” Fasullo said. This would require the ethane frac spread on the Gulf Coast to be above 30 cents per gal to encourage the extraction of ethane supplies down from the Bakken, which should represent the most marginal supply of ethane.

However, it is important to note that there is no absolute when it comes to NGL prices and frac spread margins, especially when it comes to ethane, Wilczewski said.

“Even in years when ethane was priced significantly above natural gas, we still had pipeline gas at 1,018 to 1,023 Btu per standard cubic foot (scf), and that’s not pure methane. Methane is about 1,010 Btu per scf, so if you just had methane plus some CO2 and nitrogen, which always make their way into the pipeline, you would have gas below 1,000 Btu. We haven’t seen Btus at those levels in decades. There is something else in the stream adding value, and that component is generally ethane. This means there is a lot of ethane moving around gas pipeline systems, and it’s up to producers whether or not they choose to recover it,” Wilczewski said.


Navigator Holdings reached an agreement to transport ethane from Marcus Hook, Pa., to Borealis’ cracker in Stenungsund, Sweden, via one of its four 35,000 cubic meter ethane/ethylene carriers currently being constructed. The company has the capability to transport ethane via nine carriers, including the Navigator Saturn. Source: Navigator Holdings Ltd.

Similarly, ethane is still extracted from the gas stream in certain locations even when it is not profitable on paper. This may be due to contract or pipeline specifications as well as the spot price increasing at a location due to a shortage.

More from Sarnia

As ethane supplies grow, the likelihood of new cracking capacity being built also increase with the most likely destinations being the Gulf Coast and the Northeast. While the Gulf Coast currently has six crackers under construction, no ground has been broken in the Northeast on a new cracker. There have been multiple locations mentioned for a cracker in the Marcellus-Utica. These have typically been focused on areas of Pennsylvania, Ohio and West Virginia, but an interesting city to crack volumes for the region could be Sarnia.

“Canada acts as the 51st state, so to speak, as far as crackers are concerned because it’s much easier to transport ethane from the Marcellus-Utica to Sarnia than all the way down to the Gulf Coast,” Fasullo said. The addition of cracking capacity in Sarnia would most likely be through the expansion of existing facilities, he said, rather than greenfield construction.

In fact, this usage of Canada as an extension of the domestic market is an indication of the coming of globalization into U.S. energy markets. Rather than closing one door and opening another, U.S. ethane is set to open a door to new markets while maintaining the benefits of the domestic market and the cost advantages found at home.

Frank Nieto can be reached at fnieto@hartenergy.com or 703-891-4807.

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