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Upstream producers and midstream natural gas liquids (NGL-)
operators and asset owners in Norway are reducing ethane recovery
from natural gas and have temporarily suspended ethane exports to
Sweden and Belgium. Recent high natural gas prices in Europe
greatly incentivize ethane rejection to boost natural gas
production and natural gas sales in the form of rejected ethane.
Norwegian authorities have limited short- term expansions of
natural gas production, so ethane rejection is a way to increase
natural gas production in the short term to support the current
European natural gas supply shortage. Ethane recovery and ethane
exports from this producing area are likely to resume once natural
gas markets in Europe return to more normal conditions.
Norway suspends ethane exports
Norway as a country is both an importer and exporter of ethane,
although both production and imports of ethane are much larger than
exports. Ethane is recovered at the Kaarstoe gas processing and NGL
fractionation complex along with propane and butane (LPG) and is
sold domestically and exported. INEOS receives domestic ethane
cargoes at its Rafnes steam cracker and also imports ethane from
the United States. Equinor exports some of the ethane recovered
from Norwegian natural gas production at Kaarstoe.
These activities are separated both geographically and from an
infrastructure standpoint; ethane recovered at the NGL
fractionators at Kaarstoe for domestic consumption and export is
not linked directly to the Rafnes complex. A pipeline project was
planned to transport ethane-rich natural gas from Kaarstoe to
Rafnes (the Skanled project), but has not been completed. The
pipeline was to deliver this ethane-rich gas stream to the Rafnes
complex with ethane then extracted and recovered at Rafnes to be
used as a petrochemical feedstock. The natural gas stream remaining
was planned to be sent on to Denmark and Sweden as a fuel. This
project was suspended in 2012 and has not been revived.
Since INEOS began ethane imports to Rafnes in 2016, Norway has
been a net importer of ethane in most months. On the export side of
the equation, Equinor has ethane supply contracts with both
Borealis in Sweden and TotalEnergies in Antwerp, and although
volumes are small, exports have mostly been steady month to month
(see Figure 1). IHS Markit analysis of recent waterborne ethane
liftings from the United States to Norway and receipts and exports
of ethane from Norway indicates the export of ethane from Norway
fell in September and halted entirely in October.
A summary of the ethane feedstock situation for the two buyers of
Norwegian ethane is as follows. To meet the needs of its steam
cracker at Stenungsund, Sweden, Borealis imports ethane both from
Norway and the United States. Borealis has ethane supply contracts
with shale gas producers in the Marcellus and Utica plays in the
northeastern United States and imports cargoes originating at the
Marcus Hook terminal near Philadelphia, Pennsylvania. IHS Markit
expects Borealis will increase its lifting at Marcus Hook to fill
the gap left by the loss of Norwegian supply.
The other buyer of Norwegian ethane, TotalEnergies, receives ethane
at its petrochemical complex in Antwerp, Belgium. TotalEnergies
does not have any direct access to US ethane supply, and there is
no established market for spot ethane cargoes. In the past, INEOS
has at times used its surplus US ethane terminal and shipping
capacity to sell spot ethane cargoes to other companies, including
several to Borealis during the period before its US supply contract
came into effect in 2020. This is one possible remedy, as is
switching feedstock in Antwerp from ethane to propane or butane.
Borealis also has such flexibility, but current ethylene production
economics make this very unlikely for both companies. Both propane
and butane are widely unfavorable to both US-sourced ethane and
European naphtha on an ethylene cash cost basis (see Figure 2).
In October and November IHS Markit's Waterborne LPG has observed
three ethane cargoes from the US to Antwerp. One of these
originated at Marcus Hook on one of INEOS' Dragon-class ethane
carriers, and the other two came from Morgan's Point on Navigator
vessels. INEOS and possibly another buyer with access to US ethane
supply and terminal capacity is selling some spot volumes to
TotalEnergies to make up the gap left by lower Norwegian
output.
Another possibility would be Equinor sending its ships to the
United States to lift ethane cargoes. This would require an
agreement with one of the US terminal capacity holders, which could
be possible given current utilization rates. In 2021, utilization
has been below 80% at all three operational US ethane export
terminals.
Gain greater insight into global and regional ethane
and NGL markets with IHS Markit Midstream Oil and NGLs research.
Learn more here.
Posted 02 December 2021 by Edgar Ang, Associate Director – Midstream Oil & NGL S&P Global Commodity Insights and
Keefer Douglas, Director, Midstream Oil and NGLs Research and Consulting, IHS Markit and