What’s That Light Ahead For Ethane?

NEW ORLEANS—There’s light at the end of the long, dark ethane tunnel, according to a leading midstream consultant.

“But that can mean different things. It could mean better times ahead or it could mean an oncoming train,” Peter Fasullo, principal at Houston-based EnVantage Inc. told a standing-room-only crowd April 12 at the 95th annual GPA Midstream Association convention.

Formerly known as the Gas Processors Association, the organization’s annual meeting attracted nearly 2,000 midstream leaders for a wide-ranging review of business, regulatory and technical issues.

Ethane is unique among gas liquids because of its limited uses, Fasullo said. “It really has only one end use, and that is for ethylene production. The suppliers greatly outnumber the users.”

The supply-demand balance for ethane has been in great oversupply since 2012, Fasullo said, due to the NGL-heavy production from the major unconventional shale plays. That has led to giveaway prices and large ethane-rejection volumes in which much of the ethane extracted from raw natural gas goes into the gas transmission system for consumption by gas users.

In response to the upturn in shale gas production, the midstream has added 26.5 billion cubic feet per day in gas processing capacity in the last four years, “and virtually all of that has been deep-cut cryogenic capacity increasing the supply of ethane.”

Meanwhile, end users must take several years to build new cracking capacity that makes use of that surging supply, he noted. That, in time, will be a sizeable market.

In addition to new domestic cracking capacity, Fasullo pointed out there are growing export markets for ethane as cracking plants switch from more expensive naphtha feedstocks. But building the necessary infrastructure to transport and store the gas liquid, and refitting existing plants, takes time.

So what lies ahead? It’s hard to say, Fasullo noted, repeating his light at the end of the tunnel example.

Significant new cracking capacity will start coming onstream in late 2017 and 2018, right about the time that ethane production, unfortunately, drops off thanks to the current decline in drilling.

Because of that drilling slowdown, the midstream buildout also is slowing and much of the potential new ethane production lies far from the ethane cracking plants concentrated along the Gulf Coast.

“It is no longer a supply-push story,” Fasullo said, adding that ethane production will peak in 2017 and decline through 2020.

“A shortfall in U.S. ethane supplies is probable in the 2018 to 2020 period,” he continued. “U.S. and foreign petchems have taken it for granted that ethane will remain oversupplied and cheap but that may not be the case.”

Fasullo emphasized that “the supply-push needs to fully transform to a demand-pull” to balance the market. Given the questions about supply and demand in the next four to five years, there will be winners and losers in the midstream as the ethane issue sorts itself out, he said.

“The integrated midstream players who can take ethane from the field to the end market will benefit the most,” he predicted.

Paul Hart can be reached at pdhart@hartenergy.com.