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Ethane Prices Rose Slightly, Affecting MLPs Last Week

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Ethane price movement

Mont Belvieu ethane prices moved slightly upwards to 19 cents per gallon for the week ended July 24, 2015. The price was 18.63 cents per gallon on July 17.

Ethane production in the United States grew rapidly over the last few years as midstream companies developed more infrastructure supporting ethane recovery and transportation. As natural gas prices remain relatively low, producers have shifted their focus to “wet” gas plays, which increased the production of natural gas plant liquids, including ethane.

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Ethane rejection

Ethane prices dropped below natural gas spot prices in 2013 due to the excess supply. So ethane recovery became unprofitable. The costs of storing and transporting ethane are higher than other HGL (hydrocarbon gas liquids) products. This resulted in “ethane rejection,” which means producers leave ethane in the natural gas stream since low prices make extracting ethane uneconomical. The above graph shows weekly ethane prices over five years.

EQT Midstream Partners (EQM), QEP Midstream Partners (QEPM), Southcross Energy Partners (SXE), and Summit Midstream Partners (SMLP) are some of the companies engaged in natural gas gathering and processing.

Developments to watch for

Some recent developments in the ethane market are expected to positively affect companies such as Sunoco Logistics (SXL), MarkWest Energy (MWE), Energy Transfer Partners (ETP), and Enterprise Product Partners (EPD). ETP forms ~7.6% of the Alerian MLP ETF (AMLP). These developments relate to the following.

  • Lower ethane prices have resulted in petrochemical companies increasingly using ethane as a feedstock in place of naphtha. The EIA expects this trend to continue. Ethane is primarily used in the production of ethylene, which is used in plastics production. This trend should increase ethane demand.
  • Ethane infrastructure has been developing in the United States, including plants to convert ethane to ethylene. This development supports the increased demand of petrochemical companies and is positive for ethane demand and eventually prices.
  • Companies have invested in export terminals for ethane. There’s an attractive export market for ethane, including Canada, Asia, and Europe.
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