What do you do with all the excess ethane produced from natural gas fields? That is the obstacle most cited by the naysayers of the shale revolution.
With the shale boom, ethane (a natural gas liquid) has become the dominant feedstock for cracking, a process that breaks down shale gas on a molecular level to make it more usable. Ethane is most often converted into ethylene, the most common petrochemical and the root of many plastics.
But, the United States currently produces more ethane than it consumes, and we are running out of places to store it.
And this has created a major opportunity for three companies in the space…
U.S. Ethane Surplus
Peter Fasullo of consultancy Envantage reported that over the past eight years, U.S. ethane extraction capacity has risen 60% to 1.23 million barrels per day (bpd) in 2014. He forecasts that ethane production will hit 2.2 million bpd by 2020.
This excess supply could lead to a new revenue stream for the country.
The problem is, the United States lacks the necessary infrastructure needed to export ethane. I discussed this problem in detail in March, reporting on the infrastructure build-out that will occur over the next few years to alleviate the problem.
For right now, though, much of the excess ethane is just sitting idle in pipelines, and they’re almost at capacity.
But is this all about to change?
The Big Buyer
You may recall that Chief Resource Analyst Karim Rahemtulla highlighted the company back in February.
Well, it just announced on August 20 that it would ship 1.5 million tons of ethane annually from the Marcellus Formation in the Northeastern United States to its upgraded cracker plant in India.
The plant will be up and running in the second half of 2016 with a doubled ethylene production capacity of 3.3 million tons per year.
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Reliance has already ordered six of the world’s first very large ethane carriers from South Korea’s Samsung Heavy Industries (010140.KS) in order to ship the ethane.
The Reliance deal comes none too soon, as do all the plans to build out the pipeline network.
Last Piece of the Puzzle
But, there is one last piece needed to make ethane exports from the United States a reality: export terminals at the end of all those pipelines.
Luckily, two firms are perfectly positioned to profit from providing terminals for future U.S. ethane exports.
The first company is Sunoco Logistics Partners L.P. (SXL) with its Marcus Hook terminal on the Delaware River.
It’s scheduled to start packing and shipping 20,000 barrels of ethane a day in 2015. That is just the beginning, though. With two ethane pipelines servicing it, the Marcus Hook terminal is capable of shipping up to 70,000 bpd.
Even more exciting for investors is Enterprise Product Partners L.P. (EPD).
This company is building a 240,000-bpd ethane export facility on the Houston Ship Channel in Texas, which will be the largest in the world.
Enterprise is aiming for the third quarter of 2016 for the terminal’s start-up. The company reports that it’s already executed long-term contracts to support the facility and is in talks with other potential customers.
With worldwide demand for U.S. ethane on the rise, both Enterprise and Sunoco look to be sitting in the catbird seat.
And “the chase” continues,