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US ethane rejection steady at 500,000 b/d

3 Nov 2017, 5.16 pm GMT

US ethane rejection steady at 500,000 b/d

Houston, 3 November (Argus) — The US continues to reject at least 500,000 b/d of ethane as shale gas production continues to outpace cracking demand, according to midstream operators and producers.

Third-quarter earnings discussions continued to show stronger sentiment for 2018 ethane pricing as new ethylene capacity comes online on the US Gulf coast.

Antero Resources, the largest NGL producer in the Marcellus shale, estimates total US rejection at about 575,000 b/d. Oneok Partners, which operates gathering systems in the midcontinent, estimated rejected ethane volumes on its system alone at more than 150,000 b/d, steady from the prior quarter.

High ethane rejection comes despite more takeaway capacity from the Marcellus shale. Enterprise Products Partners, which operates the Appalachia to Texas pipeline carrying ethane from the region to storage at Mont Belvieu, Texas, reports ethane volumes on the line are up by 26,000 b/d from last year.

Rejected volumes fluctuate on a daily basis, Tony Chovanec, a senior vice president at Enterprise, told investors on the company's earnings call this week. Enterprise provides ethane to US ethylene crackers from its storage system at Mont Belvieu, Texas.

"Using our pipelines and fractionators as a bellwether, it comes and goes based on economics," Chovanec said, estimating about 500,000 b/d of ethane rejection presently. "We think there is considerable upside as far as production from the ethane molecule."

Ethane averaged a 6.55¢/USG premium to its fuel value during the third quarter as steady cracking demand, coupled with a higher price ceiling for competing feedstocks like propane and butane, lent support to prices. Still, ethane at Mont Belvieu stands at a 67.8¢/USG discount to propane.

Ethane margins rely on the transportation costs from field to fractionator and on to petrochemical plant, Enterprise chief executive Jim Teague said.

"You are going to get margin improvement the question is how far out do you have to reach to get it? If you're in the Eagle Ford you're going to feel pretty good about ethane, in the Marcellus, not so much," Teague said.

Marcellus operator Antero estimates its total 2017 ethane production at 26,500 b/d.

Antero estimated it saw a $5.90/bl discount for its NGL production relative to prices at Mont Belvieu, reporting a total realized price of $26.54/bl during the quarter, which includes ethane recovery.

Antero and other producers in the region are waiting for the expansion of the Mariner East 2 pipeline in the Appalachian region to offtake more production to the Marcus Hook export terminal in Pennsylvania. That expansion, likely to be completed in early 2018, according to some term customers, will add another 275,000 b/d of ethane, propane, and butane capacity to the waterborne market.

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