Long-awaited ethane surge meets the eye of the supply needle – the "de-ethaniser" tower

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A major surge in ethane prices is making big news in the natural gas liquids (NGL) world. Ethane prices have awakened from a five-year nap at gas equivalent levels in the Gulf Coast to nearly double in the past three months, going from $.28/gallon in early June to $.5575/gallon on 14 September 2018. Since NGL production continues to ramp up along with oil and gas, the hunt is on for the bottleneck in the supply chain. What is keeping the ethane that’s been deliberately left in the gas stream away from the growing ethylene market?

Wood Mackenzie analysts know the source of the bottleneck - fractionation. Other than a handful of locations with small capacity units designed to split out barrels for local markets, most US NGLs are piped as a mix of molecules to central storage and distribution locations for further handling. This mix of so-called “liquefiable hydrocarbons” that are frozen or squeezed out of the vapour that we call natural gas is called “Y grade”, a term that comes from the product descriptions in an NGL pipeline tariff. “Y-grade” implies a blend of molecules that includes ethane, propane, isobutane, normal butane, and pentanes. Their molecular weight is too light to be put into a crude oil line but too ‘heavy’ to be left in a natural gas line.

Once the Y-grade gas gets to a hub facility, it must be split or ‘fractionated’ into the groups of molecules sold as so-called “purity” products to end-users. NGL fractionator towers work the same way as the distillation towers in a crude oil refinery. The towers heat the mixed stream and separate the components based on the differences in their boiling points. The big challenge for NGL fractionators is that the amount of ethane in an incoming stream of Y-grade can currently vary by 30% or more depending on the value of the ethane; the parts of the fractionator designed to separate the ethane (the “de-ethaniser”), are also designed for a stream that ranges from 35-38% ethane (in older units), to 50% in newer facilities.

The result is a price that inspires producers and holders of processing rights all over the country to pull ethane out of their gas after five years, but pure ethane supply is not ramping in response. In fact, according to the US EIA, ethane supply fell by an average of 33 k b/d in June. This drop was counter-intuitive given that Exxon was in the process of bringing up a world-scale ethylene cracker at Mont Belvieu.

Wood Mackenzie alerted clients to the pending squeeze in fractionation capacity in our July production update:

Additionally, our forecasted supply/demand balances point toward a tight market through year-end:

As with most things involving ethane, the challenges of getting the gas producer’s least-loved molecule to its growing market are more complicated than simply putting up more fractionation towers. Furthermore, higher ethane prices are not what the new ethylene plants were hoping for as the first big wave of petrochemical capacity ramps up. Wood Mackenzie’s proprietary monitors help users see how the supply chain responds to these challenges and inform our outlook for the impacts on supply. Wood Mackenzie's NGL supply chain monitoring services include NGL fractionators, pipelines, and ethylene crackers.

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