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With the rise in US natural gas and oil production US ethane
availability has increased significantly. US natural gas production
is projected to grow by more than 50%, from approximately 80
billion cubic feet per day (Bcf/d) in 2017 to 123 Bcf/d by 2040,
propelled by the development of unconventional oil and natural gas
plays and basins upstream activity.
The US is the world's largest exporter of natural gas liquids (NGL)
in total, including ethane and propane and butane. The US exports
NGL internationally through pipeline interconnections and over
water via ships/vessels. During the past few years, the rapid
increase in NGL available for recovery in the US drove NGL prices
down including ethane. Lower prices in the case of ethane caused
ethylene/propylene producers both domestically and abroad to take
notice of an attractive petrochemical feedstock option even after
accounting for logistics costs associated with natural gas
gathering, natural gas processing, NGL fractionation in to purity
ethane, and ethane storage and pipeline transportation.
Available ethane is significant and more than US ethane demand and
the only demand sink for purity ethane is as a petrochemical
feedstock. Total annual US ethane exports to international
destinations via pipeline and waterborne vessels is currently
approximately 0.28 million barrels per day (b/d) and is expected to
reach 0.58 million b/d by 2030. Will availability of US ethane for
international markets alone mean ethane will become a global
commodity? Let's investigate this hypothesis and conclude.
An opinion and conclusion in relation to ethane becoming a
globally traded commodity and global market is bounded by and can
be answered by addressing the following questions:
Will US ethane be readily available and tradeable (waterborne
trade) over long distances and economically advantaged over a
long-term basis?
Similarly, will ethane be a fungible good/product, and will
this lead to US ethane price to become a global benchmark
price?
Will US ethane prices become interconnected and interrelated to
other petrochemical feedstocks from an onshore, regional and global
perspectives?
Is there or will there be enough US ethane market liquidity
(volume and pricing) to support the free trade of ethane while at
the same time allow for the buyers and sellers to effectively
manage price risk?
Will there be or is there enough transportation and logistics
capacity to support global ethane trade?
Will the transportation costs and logistics costs be
discoverable and therefore further support ethane becoming a
fungible good/product?
Will or can the US ethane market price evolve and become a
global benchmark price?
US ethane is readily available but will not be able to support
the world's appetite for competitively priced US ethane versus
naphtha and/or propane over the long term. As shown in the graph
below US ethane has a limit, reflected by "global ethane import
dependency". This is a measure of ethane exported (currently from
only the US) to meet total global demand. Over time US ethane will
not be sufficient to meet growing demand and therefore an
international market and traded commodity market for ethane will
not emerge. US ethane exports to international markets to meet
growing demand is expected to peak in 2026, reaching a global
import dependency measure of 20%. The global ethane import
dependency reflects the volume of US ethane production consumed as
a proportion of total ethane consumed as a petrochemical feedstock
on a global basis. US ethane exports increase and make up
approximately 20% of global ethane supplied by 2026 and after 2026
global ethane demand continues to rise and is supplied by
in-country supplies. For example, Saudi Arabia demand for ethane as
a petrochemical feedstock increases and the increasing demand is
met by Saudi Arabia's own domestic production. The situation is the
same in other countries and correspondingly global ethane demand
becomes less dependent on US ethane supplies.
IHS Markit Midstream & NGL market experts are
available to address your long-term NGL supply, demand, trade,
pricing, and midstream related cost questions. The question posed
here and many more can be addressed via our NGL Markets Annual
Strategic Workbooks.
