EIA: Growing ethane demand means less left in natural gas pipelines

7/14/2016

(EIA) The price of ethane averaged $3.14 per MMBtu during June 2016, 18% higher than the average price of natural gas at the Henry Hub over that period. Ethane prices had been at or below natural gas prices from late 2012 through the beginning of 2016, as ethane demand and infrastructure growth lagged supply increases. Since January 2016, there have been indications that the portion of ethane recovered as a percent of total NGL produced has generally been increasing, while the heat content of natural gas delivered to consumers, an indicator of NGL-content (primarily ethane) in pipeline gas, has been declining.

Recovery of ethane from unprocessed natural gas can be at the discretion of gas processing plant operators. Unlike heavier NGL, such as propane, butanes, and natural gasoline, ethane can remain in the processed gas that is transported on interstate pipelines. The extent to which processing plants extract ethane and other NGL are influenced by their price compared with processed natural gas (on an energy-equivalent basis) and local market dynamics.

The uptick in ethane prices this year coincided with higher ethane consumption by the petrochemical industry on the US Gulf Coast, indicated by strong increases in ethane product supplied in Petroleum Administration for Defense District 3 (PADD 3) since November 2015. Furthermore, in early March 2016 the Sunoco ethane export terminal at Marcus Hook, Pennsylvania, began operations, providing producers in the area with an additional market outlet for 35 Mbd of ethane. US export capacity is expected to grow further in the third quarter of this year, when Enterprise Products Partners commissions its ethane export terminal in Morgan's Point, Texas, which has a planned 200 Mbd capacity. By comparison, total US ethane production in April 2016 averaged 1.3 MMbd.

By selling NGL separately from natural gas, producers gain additional revenue and increased incentive to drill for natural gas. The shift in US natural gas production to tight and shale gas formations, which in general yield higher NGL output, has been a driving force behind the 57% increase in US NGL production from 2.1 MMbd in 2010 to 3.3 MMbd in 2015. EIA's Annual Energy Outlook 2016 (AEO2016) Reference case projects US production of NGL to reach 5.0 MMbd by 2040. This reflects expectations of further growth in NGL demand, as well as recovery in oil prices and the associated recovery in NGL prices.

For the original article, visit the EIA website:

http://www.eia.gov/naturalgas/weekly/