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Viewpoint: US ethane to be oversupplied for 2025

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 feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.