US ethane supply gains seen trailing demand growth

Export and domestic demand growth for US ethane is expected to outpace US supply growth by as much as 72,000 b/d by 2026, according to a recent forecast from consultancy East Daley Analytics.

A surplus of US ethane production, bolstered by gains in natural gas drilling and production to meet growing demand for electricity generation and LNG exports, has led to increasing investments in additional ethane export terminal capacity to provide other outlets for the petrochemical feedstock.

The US Energy Information Administration (EIA) showed US ethane production from natural gas processing rose to a record 2.78mn b/d in October of 2023 and fell to 2.69mn b/d in February, the latest data the agency has available. Those volumes don't take into account ethane that is rejected into the gas stream at processing plants during periods of restrained capacity or when natural gas prices spike on weather-related outages, incentivizing lower ethane recovery.

Mont Belvieu, Texas, EPC ethane's premium relative to its natural gas fuel value at Waha reached a peak of 50.31¢/USG on 6 May, a 16-month high, and has averaged 26.08¢/USG in May so far, according to Argus data. As ethane margins versus natural gas rise, ethane extraction at natural gas processing plants becomes even more profitable, pushing ethane recovery rates higher.

Yet East Daley's forecasts suggest projects to absorb this additional feedstock may quickly outpace production.

The consultancy projects US ethane production will rise by 283,000 b/d by 2026, driven mostly by gains in natural gas production in the Permian and Marcellus basins.

Increased gas takeaway capacity from the completion of maintenance on Kinder Morgan's Permian Highway pipeline (PHP), the Gulf Coast Express (GCX) pipeline, and the Transwestern pipeline at the end of this month, will allow for higher levels of ethane rejection, according to Rob Wilson, East Daley's vice president of analytics, limiting potential gains in ethane production from the additional gas.

Further gas capacity restrictions in the Permian are expected to be mitigated when the 2.5 Bcf/d Matterhorn Express pipeline — which runs from the Waha, Texas, gas hub to Katy, Texas, on the Gulf coast — comes online in the third quarter of this year.

Domestic demand for ethane is projected to rise by 129,000 b/d by 2026 with the addition of Chevron Phillips Chemical's joint venture with QatarEnergy to construct a 2mn t/yr ethane cracker on the Texas Gulf coast that is scheduled to come online in 2026. That joint venture will consume 118,000 b/d of ethane when at full capacity, but will operate at 50pc of capacity when first on line in 2026, according to East Daley.

Increased US ethane cracking will come on top of a 231,000 b/d increase in ethane exports by 2026, driven by demand from Chinese crackers and burgeoning demand from Indian crackers, according to the consultancy. Ethane export expansions at Energy Transfer's Marcus Hook terminal in Pennsylvania and Enterprise Products Partners' new flexible LPG and ethane terminal at Beaumont, Texas, are expected to be complete by 2025 and 2026, respectively.

Combined, these projects add another 360,000 b/d of ethane demand by 2026, outstripping expected supply growth by an estimated 72,000 b/d, according to East Daley's forecast.

By Abby Downing-Beaver