24/12/24
Viewpoint: US ethane to be oversupplied for 2025
Houston, 24 December (Argus) — US ethane production growth will likely continue
to outpace exports and domestic demand into the first half of 2025, keeping US
inventories of the natural gas liquid in record territory until export capacity
expands late next year. Ethane, which is widely used for ethylene production at
US steam crackers, has emerged as the lowest-cost petrochemical feedstock
worldwide, spurring infrastructure investments in Asia, particularly China, to
receive US ethane exports. Still, US ethane production from gas processing
continues to outpace the country's ability to ship it into demand centers in
Europe, India and China. Mont Belvieu, Texas, EPC ethane spot prices fell
relative to natural gas in 2024 due to record ethane production, leaving ethane
stocks oversupplied entering 2025. EPC ethane's premium to its fuel value in
Nymex natural gas at the Henry Hub averaged 3.25¢/USG during 2024, 54pc lower
than in 2023. It also averaged a 1.75¢/USG premium to its fuel content in the
second half of 2024, 77.5pc lower than the same period last year, as spot ethane
prices fell on ample supplies. Cheaper natural gas in the Permian basin spurred
higher rates of ethane recovery from the natural gas stream and led to a
disproportionate rise in ethane production. Spot prices for natural gas at the
Waha hub in west Texas across the year averaged -$0.10/mmBtu, with prices
remaining negative for eight of nine months from March-November. Prices were
consistently positive in 2023, averaging $1.66/mmBtu across the year. Negative
Permian gas prices allow ethane recovery from the gas stream at a much lower
cost. US natural gas production in 2024 is poised to be steady to slightly down,
having averaged 3.14tcf in monthly production from January to September,
according to US Energy Information Administration (EIA) data. Meanwhile, ethane
production is set to reach a record high for the 11th consecutive year, with
monthly production averaging 2.78mn b/d over the same period, up from a 2.65mn
b/d average over the whole of 2023. Waha gas prices turned positive in the
second half of November and spiked to a multi-month high of $2.56/mmBtu on 2
December, pushing ethane prices to a 13-month high of 25.625¢/USG the following
day as downstream buyers bid higher to fulfill contracts for the month .
Ethane's rally was brief, however, with Mont Belvieu prices falling to 22.5¢/USG
over the next week even as Waha climbed further. Record ethane inventories
Ethane inventories hit record highs in 2024, according to EIA data, including a
peak of 80.89mn bl in July, 79.5mn bl in August and 77.23mn bl in September.
Mont Belvieu ethane has also been in backwardation in December, with January
prices at a 2-4c discount to prompt December prices, encouraging selling
interest. Sustained cold weather and additional surges in natural gas spot
prices may further draw down ethane supplies as higher volumes are rejected into
the gas stream, market participants suggest, but as it stands, ethane supplies
are likely to remains at or near record highs for the first part of the new
year. In the EIA's most recent Short Term Energy Outlook (STEO), the agency
projects ethane inventories to end 2024 at 74.1mn bl , which would be a year-end
record following a seasonal draw down, and 12.6pc higher than a year earlier. In
that same report, including projections for the fourth quarter, domestic
consumption of ethane is estimated to be 2.26mn b/d in 2024, up by about 98,000
b/d on the year, and net exports are estimated at 483,000 b/d, up by around
13,000 b/d, whereas production of ethane from natural gas processing is expected
to be 113,000 b/d higher at 2.77mn b/d. Playing catch-up If projections are
accurate, 2024's record end-of-year ethane supply will exceed the peak
previously set in 2020 of 69.6mn bl, based on EIA data. The first VLEC loadings
at Energy Transfer's 180,000 b/d Nederland, Texas, export terminal began in
January of 2021, resulting in year-end inventories reaching a relative trough in
2022 at 53.55mn bl before rebounding by nearly 50pc in the last two years.
Domestic ethane consumption growth has kept pace with or fallen behind growth in
production since 2020. Conversely, ethane exports in 2021 jumped by 98,000 b/d
to 369,000 b/d on the opening of the Nederland terminal and grew more slowly in
2022 and 2023. Exports of US ethane are limited by infrastructure at receiving
terminals abroad and the specialized vessels required to ship the lighter
feedstock. Overseas markets are gearing up to take ethane imports over the next
few years , and US ethane inventories are likely to continue building ahead of
of an expansion to domestic export infrastructure as US production grows
further. Enterprise's Neches River export terminal in Beaumont, Texas, is the
next scheduled US expansion and is set to complete its first phase in the third
quarter of 2025 , adding 120,000 b/d of ethane export capacity. Completion of
the second phase in the first half of 2026 would take this capacity to a total
of 180,000 b/d. The project, if it remains on track, should curtail ethane
inventory growth at the back end of 2025. Until then, abundant supply probably
will continue to weigh on spot prices, and the first half of 2025 may see ethane
prices fall further, both outright and relative to natural gas, especially since
the EIA's outlook also forecasts gas prices to rise through the winter. By
Joseph Barbour Send comments and request more information at
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