Wednesday, January 24, 2018

Some Comments on the US Ethane Supply Surplus

A 2017 US Energy Information Administration webpage (click here) indicates that the US production of ethane is expected to be approximately 1.7 million barrels per day (m b/d) by the end of 2018.   However, the ethane US domestic consumption is expected to be approximately 1.4 m b/d, leaving a 300,000 b/d surplus of ethane.

The same webpage shows an increase in ethane production of approximately 80% (from 1.0 m b/d to 1.8 m b/d) during the period 2013 to 2018.   This production increase surge has been driven by lower US prices for ethane (due to fracking and other technical developments associated with shale gas availability).   The lower ethane prices have greatly increased ethane demand for producing ethylene.

The ethane supply – demand balance seems to be working well over the last several years in maintaining current low prices of ethane compared to its price in other countries.  But, as demand is increased due to new US ethylene-producing plants coming on line and other countries seeking imports of US ethane because of its lower price, can ethane production maintain sufficient supply to exceed the demand and keep ethane prices low?   Huge investments have been made based on continued excess ethane supplies and low prices for ethane.  At what point would ethane prices have to rise to make these investments a lot less attractive?  A ICIS article has a discussion related to this question (click here).

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