Mont Belvieu ethane prices rose to $0.186 per gallon for the week ended September 11, 2015. The price was $0.182 per gallon for the week ended September 4. Lower ethane prices combined with higher costs of storing and transporting ethane have resulted in ethane rejection. This means that producers leave ethane in the natural gas stream. Due to low prices, extracting ethane isn’t always economical.
The costs of storing and transporting ethane are higher than other HGL (hydrocarbon gas liquids) products. 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 the past six weeks. EQT Midstream Partners (EQM), Southcross Energy Partners (SXE), and Summit Midstream Partners (SMLP) are some of the MLPs engaged in natural gas gathering and processing.
Some recent developments in the ethane market are expected to positively affect companies such as Sunoco Logistics Partners (SXL), MarkWest Energy Partners (MWE), Energy Transfer Partners (ETP), and Enterprise Products Partners (EPD). SXL forms ~0.1% of the PowerShares Dividend Achievers ETF (PFM) and ~4% of the Direxion Zacks MLP High-Income ETF (ZMLP).
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, which is used in plastics production. This trend should increase ethane demand.
Ethane-related infrastructure has been developing in the United States, including plants to convert ethane to ethylene. This development supports petrochemical companies’ rising demand, and it is positive for ethane demand and for prices, eventually. Companies have invested in export terminals for ethane. There is 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 one of the project have already started. Phase two of the project is scheduled for completion by the end of 2016. Enterprise Products Partners is also working on a large ethane terminal in the Houston Ship Channel.