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Which MLPs Could Gain from the Rise in Ethane Prices Last Week?

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Ethane prices

Mont Belvieu ethane prices rose to $0.20 per gallon for the week ending August 7, 2015. The price was $0.19 per gallon for the week ending July 31. Ethane prices fell below natural gas spot prices in 2013 due to excess supply.

The costs of storing and transporting ethane are higher than other HGL (hydrocarbon gas liquids) products. This is resulting in “ethane rejection.” It means that producers leave ethane in the natural gas stream. Due to low prices, extracting ethane isn’t always economical. Read What is ethane rejection and why is it important for energy MLPs? to learn more about ethane rejection.

The above graph shows weekly ethane prices over six weeks. EQT Midstream Partners (EQM), QEP Midstream Partners (QEPM), Southcross Energy Partners (SXE), and Summit Midstream Partners (SMLP) are some of the MLPs engaged in natural gas gathering and processing.

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Key developments

Some recent developments in the ethane market are expected to positively affect companies like Sunoco Logistics (SXL), MarkWest Energy (MWE), Energy Transfer Partners (ETP), and Enterprise Products Partners (EPD). Energy Transfer Partners forms ~7.60% of the Alerian MLP ETF (AMLP).

One such development is higher ethane use by petrochemical companies. Lower ethane prices have resulted in petrochemical companies using ethane more as a feedstock in place of naphtha. The EIA (U.S. Energy Information Administration) expects this trend to continue. Ethane is primarily used in the production of ethylene. It’s used in plastics production. This trend should increase the ethane demand.

Ethane infrastructure

Ethane related infrastructure has been developing in the US, including plants to convert ethane to ethylene. This development supports petrochemical companies’ rising demand. It’s 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.

Sunoco Logistics’ Marcus Hook project has the capacity to process, store, and distribute ethane to domestic and international markets. The initial operations of Phase 1 of the project have already started. Phase 2 of the project is scheduled to be complete by the end of 2016. Enterprise Products Partners is also working on a large ethane terminal in the Houston Ship Channel.

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