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Ethane on track for rebound in US, long-term outlook positive: analyst

Increase font size  Decrease font size Date:2012-10-10   Views:615
Despite a rocky first half plagued with ethylene plant turnarounds and depressed prices, US ethane balances will improve during the remainder of 2012 and in 2013 as the majority of plant maintenance activities have ended and steam cracking capabilities have increased, an industry expert said Monday.

Speaking at the 2nd Annual Platts NGLs conference in Houston, En*Vantage principal Peter Fasullo said ethylene plant turnarounds that took place in the first part of the year dropped ethane demand by 10%, but with most of those plants back up, and many of them now with enhanced capabilities, the US ethane market is on track for a long-term rebound, Fasullo said.

Enhancements made to existing ethylene plants will add 100,000 b/d to the market by the end of 2012. In the next few years, another 35,000 b/d will be added in 2013, 85,000 b/d will be added in 2014, 18,000 b/d will be added in 2015 and 25,000 b/d will be added in 2016, Fasullo said.

In addition to enhancements at existing plants, a host of other projects aimed at boosting ethylene capacity are being proposed as well. Formosa, ExxonMobil, CPChem, Dow and as well as other companies are looking to expand their ethylene capabilities, he said.

"This may be the tip of the iceberg," Fasullo said. "They're not talking small projects. They're talking world-scale."

Fasullo said it was probable that another 4.9 Bcf/d would be built between 2015 and 2020.

Low natural gas prices have combined with high crude prices to provide a significant BTU price spread between gas and crude, which has been driving both the supply and demand for US natural gas liquids. That relationship is what has given the nation's petrochemical industry its competitive advantage, Fasullo said.

"If anything were to disturb this relationship between gas and crude, that would really grind everything to a halt," Fasullo said, adding that a moderate shift in the gas-to-crude ratio would not have a significant impact on the petrochemicals industry.

The US will have more than 13 Bcf/d of ethylene capacity by 2015, with more than 40% situated in inland Texas and along the Gulf Coast and 34% located in the Marcellus and Utica shale plays, Fasullo said.

"This is all going to contribute to future liquids production, he said, including a growth from 2.45 million b/d in 2011 to 3.42 million b/d by 2020 in NGL extraction capacity. Ethane extraction capacity will grow from 1.04 million b/d in 2011 to 1.63 million b/d by 2020, he said.

But until those projects come online, the ethane market likely will find itself in a supply overhang situation starting in the 2014-2015 time frame, Fasullo said. Rejecting ethane, particularly in the pricier Marcellus and Utica shales, will help relieve some of the ethane overhang. "It's a concern for people in the Marcellus and Utica, but not as dire as some people are saying," he said. "We're trying to get a handle on how much gas pipelines can handle with ethane remaining in the gas stream. Producers may have to throttle back production."

Down the line, bringing Marcellus and Utica ethane to market will largely depend on future ethane demand from the petrochemicals industry. At 22-30 cents/gal -- or $3.47 to $4.52/MMBtu -- it will be the highest-cost ethane to bring to market, Fasullo said.

After 2015, more ethane extraction will be needed as more ethylene plants come online, he said.

Despite his favorable outlook for ethane in the long term, Fasullo said ethane fractionation spreads will remain down for the near term. In addition, the improvement in ethane balances is contingent on the ethylene industry operating above 90% capacity, he said.

"Ethane is always going to be susceptible to ethylene swings, but it won't be chronic," Fasullo said. "Strap on the seatbelt."

 
 
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