Exports will be the primary driver in the supply and demand pricing function for North American natural gas and natural gas liquids (NGL) going forward. In addition, exports of refined products such as distillates and diesel have been having an impact on crude prices.
Enterprise Products Partners and Targa Resources both acknowledged customers have been seeking ways to export ethane, according to Wells Fargo Securities’ March 2013 NGL Snapshot.
The idea of ethane exports has become enticing due to the high level of rejection of the product in various North American hubs. The investment firm stated that ethane rejection is estimated to be between 150,000 barrels (bbl.) per day and 250,000 bbl. per day, but has not affected every hub.
In fact, both Enterprise and Targa officials told Wells Fargo that there has not been widespread ethane rejection on their systems. “Enterprise [officials] indicated that the partnership has a higher threshold for ethane rejection at its processing plants in the Rockies after factoring in the [transportation and fractionation] fees collected by the partnership downstream of its processing plants. Accordingly, ethane rejection has not had a significant impact on the [company’s] Y-grade [mixed] NGL pipeline volumes,” the report said.
Targa officials stated that propane prices have been subsidizing ethane rejection economics, which has led to negligible rejection throughout its system. Although ethane prices have been experiencing improvements of late, officials from both companies stated that they anticipate the ethane market to remain oversupplied for several years.
At least in the near-term, light NGL prices should continue to benefit from the construction of new liquefied petroleum gas export capacity. Though propane demand could lessen with price increases associated with this construction, the ceiling for ethylene price should also increase and help support ethane prices.
Ethane demand should remain healthy as it replaced naphtha as the baseload feedstock of choice for crackers. Even if there is some feedstock switching on a month-bymonth basis, the report anticipates that a strong amount of ethane will continue to be consumed on a regular basis.
While no projects to export ethane have been announced at this time, Wells Fargo stated that officials with both Enterprise and Targa indicated that more customers have been requesting such infrastructure. This would not only capitalize on the growing supplies of domestically-produced ethane, but also satisfy an increase in foreign demand as more crackers overseas have upgraded to be able to switch from heavy to light feedstocks.
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