Some of the U.S. shale naysayers get to say, “I told you so,” these days.
Many shale opponents harped on the huge amounts of natural gas liquids (NGLs) that are produced as a result of fracking and what to do with it all.
NGLs include some very useful products like propane, butanes, natural gasoline, and ethane – which is used in many plastics.
But with the slide in crude oil prices has come an even more vicious drop in the price of natural gas liquids, causing the NGL market to come under extreme pressure.
NGL Prices Nosedive
From September 1 to mid-December, the price of all NGLs dropped by at least 40%. Propane prices, for example, fell to below $0.54 per gallon and are currently at a 10-year low.
The one exception to the three-month plunge was ethane prices, which fell by only 23%. But ethane prices have dropped 41% over the past six months.
NGL prices are following oil and the cause is the same – too much supply.
You see, during the shale boom last year natural gas producers concentrated on producing NGLs since they were selling at a premium to the depressed price of natural gas.
As a result, NGL production topped three million barrels per day (bpd) in 2014, and output climbed more than 60% over the past decade. Supplies of both ethane and propane climbed above one million bpd, according to the U.S. Department of Energy.
This has created a massive surplus, and thus the plunge in prices.
The Financial Times report that companies are loading as much ethane as they can into pipelines instead of selling to petrochemical firms at a depressed price. The product can be stored in the pipelines until prices move higher or sold to power plants as fuel.
But ethane pipeline capacity is limited, and the existing network is quickly filling up.
Plans for expanding the capacity of the network are already in the works, but it will still be several years before more storage is available.
The Capacity Solution
According to RBN Energy, the petrochemical industry in the United States is planning to add 600 million bpd of demand by 2020. That should bring overall consumption of ethane to about 1.5 million bpd.
This also means that ethane exports will seriously begin in a few years, too.
Indeed, export deals involving overseas petrochemical companies including Ineos, Borealis, India’s Reliance, and Saudi Arabia’s SABIC have already been announced. Caribbean countries are also considering using U.S. ethane to power their electric grids.
All of these deals should bring the ethane market back into balance within a few years, perhaps as soon as 2017.
That’s good news for the ethane producers, but also for those handling the exports.
Enterprise Product Partners L.P. (EPD), for example, will begin shipping 240,000 barrels of ethane per day in 2016 from a terminal it is currently building in Texas.
And its entire capacity is already almost all spoken for, thanks to those orders from foreign buyers. That’s led Enterprise to eye a 50% expansion of its ethane export capabilities.
The first actual ethane exports are scheduled to begin next year. Shipments will be sent to European customers like Ineos through the Marcus Hook, Pennsylvania terminal, which is owned by Sunoco Logistics Partners L.P. (SXL).
About a hundred ships are being built also, including 50 very large ethane carriers to transport some of the excess U.S. ethane.
But until all these plans start to come to fruition, the price of ethane and other NGLs will remain low.
And “the chase” continues,