Ethane supplies from the US into Europe are economically sound with oil priced at $40/b, Ineos Group director Tom Crotty said Friday.
"With oil at $20/b we can still make ethane imports work; at $40 we are rock solid," Crotty said on the sidelines of a press trip to one of Ineos' Western Pennsylvanian ethane suppliers.
However, Crotty said the decision to import ethane from the US into Europe had not been completely tied to a cost advantage against derivatives of crude oil.
"The Grangemouth cracker was under-performing on a lack of feed," he said. "We had no alternative but to source ethane for it."
In 2008 the KG ethylene cracker at Grangemouth, Scotland, one of only four gas crackers in Europe, was unable to operate at full capacity because of a lack of ethane, and Ineos was left with no option but to close the second of two manufacturing units.
US ethane will be used as a supplementary feed for the KG ethylene plant at a time when North Sea supplies are dwindling and will allow the plant to run at increased rates.
Questions over the profitability of supplying US ethane to Europe were not solely due to crude price declines but also to higher US ethane prices, which are expected to continue to rise throughout 2017.
"We will be quite protected from [US] ethane price increases in 2017 because of the contracts we have in place," Crotty said. "We had contracts in place before anyone else was interested in them."
Crotty said the terms of pricing for Ineos' supply contracts had been diversified across suppliers, adding a level of protection against movement in either crude or ethane.
"Our ethane sourcing is done in a variety of ways both on contract and spot," he said. "We have some contracts naphtha-related and some that are non-naphtha-related."
Ineos has publicised contracts at three suppliers but more are in place, Crotty said.
Of the suppliers officially announced, two -- Consol Energy and Range Resources -- are based at the northwest US Marcellus field, while another -- Enterprise Products Partners -- is located close to southern reserves in Houston, Texas.
Donald Rush, vice president of Diversified Business Units at Consol Energy, told S&P Global Platts: "We have a number of contracts with many different parties and they are all priced differently. We have diversified on purpose to hedge risk. We sell some on spot, some on contract. Some against naphtha some against Mont Belvieu ethane pricing for example. With Ineos we have done the same."
Ethane exports to Europe and India are expected to boost ethane prices from the northwest US Marcellus field, while more southern reserves would be tapped largely by new ethane crackers currently being built.
Ineos, Austria-based Borealis, Saudi Arabia's Sabic and India's Reliance all have plans to bring in US ethane for cracking over the next few years.
Eight steam crackers are under construction at the US Gulf Coast, all but one of which will take 100% ethane. The eight cracker projects, scheduled to start up between 2017 and 2019, are run by Chevron/Phillips Chemical, ExxonMobil, Dow Chemical, Oxychem/Mexichem, Formosa Plastics, Sasol, Axial/Lotte and Shintech.
Platts Bentek Energy estimates Mont Belvieu ethane prices will rise to 39 cents/gal in 2017 and to 50 cents/gal in 2018.
Platts assessed non-LST Mont Belvieu purity ethane at 20 cents/gal Friday.
