With US fractionation capacity expected to remain tight through 2019 amid production and demand increases, ethane prices are expected to remain higher at least for the first part of the year.
Mont Belvieu, Texas, EPC ethane prices have remained strong throughout the second half of 2018, averaging 40¢/USG after peaking at a six-year high of 61.5¢/USG in mid-September. Ethane prices are nearly 60pc higher than the same time in 2017.
Though participants do not expect a repeat of the late third quarter, when prices surged to the six-year highs, the expectation is for ethane prices to remain higher, likely over 30¢/USG. Forward curves show a steep contango to start 2019 before the market flattens out into the second quarter.
US fractionation capacity is expected to increase by as much as 365,000 b/d next year, with the majority of that coming up over the first half of the year. Despite the increase in US fractionation capacity, space is expected to remain tight.
"We are looking at what levers we could pull," Enterprise chief executive officer Jim Teague said during the company's third quarter earnings call.
Ethane production from gas processing plants is expected to increase to an average of 1.97mn b/d in 2019, topping 2mn b/d by the middle of the year, according to the Energy Information Administration's (EIA) DecemberShort Term Energy Outlook. Ethane consumption is expected to average 1.65mn b/d during 2019, according to the EIA.
As many as five downstream ethane crackers are expected to start up over the next year, adding an extra 305,000 b/d of ethane demand into the market.
In addition to the stronger petrochemical demand, steady export demand is expected to continue next year. US ethane exports have been at record levels throughout 2018, averaging 256,000 b/d through the first nine months of the year, compared with 178,000 b/d for all of 2017, and peaking at a record high of 319,000 b/d in April, according to the EIA.
Along with tightness in fractionation capacity, pipeline space has also been tight, leading to ethane rejection as more expensive heavier feeds get sent through the lines. Some of that tightness is expected to be eased starting in the second quarter as Enterprise brings up its 550,000 b/d Shin Oak NGL pipeline and Targa starts its 450,000 b/d Grand Prix pipeline, both running from the Permian basin to Mont Belvieu.
Oneok expected US midcontinent rejection levels on its system to remain high until 2020, when its 400,000 b/d Arbuckle II NGL line would come online, the company said in a recent presentation. Until the line is started, pipeline space moving from Conway, Kansas, to Mont Belvieu is expected to remain limited.
