Mont Belvieu ethane prices fell to 17.6 cents per gallon in the week ending November 20, 2015. Low ethane prices, combined with higher costs for storing and transporting ethane, have resulted in ethane rejection. This means that producers leave ethane in the natural gas stream. Extracting ethane isn’t always economical when prices are low. The costs of storing and transporting ethane are higher than related costs for HGL (hydrocarbon gas liquid) 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. Targa Resources Partners (NGLS), Tallgrass Energy Partners (TEP), and Summit Midstream Partners (SMLP) are some of the MLPs engaged in natural gas gathering and processing.
Recent developments in the ethane market are expected to positively affect MLPs involved in ethane projects including Sunoco Logistics Partners (SXL), MarkWest Energy Partners (MWE), Energy Transfer Partners (ETP), and Enterprise Products Partners (EPD). ETP forms 8.8% of the Global X MLP ETF (MLPA). One of these developments is higher ethane use from 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. The graph above lists large ethylene plants under construction in the United States.
Ethane-related infrastructure, including plants to convert ethane to ethylene, has been developing in the United States. This development supports petrochemical companies’ rising demand, which is positive for ethane demand and eventually for prices. Some companies have invested in export terminals for ethane, for which there’s an attractive export market in Canada, Asia, and Europe.
Sunoco Logistics Partners’ 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.