Mont Belvieu ethane prices remained flat at $0.18 per gallon for the week ending March 18, 2016. They jumped 12.6% to reach $0.18 per gallon during the previous week. However, ethane prices have fallen significantly over the years.
Low ethane prices and higher costs for storing and transporting ethane resulted in ethane rejection—when 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 the related costs for hydrocarbon gas liquids products. Read What is ethane rejection and why is it important for energy MLPs? to learn more about ethane rejection.
The graph above shows weekly ethane prices over the past six weeks. Enable Midstream Partners (ENBL), Tallgrass Energy Partners (TEP), and Summit Midstream Partners (SMLP) are a few of the MLPs engaged in natural gas gathering and processing.
Recent developments in the ethane market are expected to have a positive impact on MLPs involved in ethane projects. These MLPs include Sunoco Logistics Partners (SXL), Energy Transfer Partners (ETP), and Enterprise Products Partners (EPD). Energy Transfer Partners forms ~7.7% of the Global X MLP ETF (MLPA). MLPA consists of 30 energy sector MLPs.
One of the developments is higher ethane use from petrochemical companies. Lower ethane prices resulted in petrochemical companies using ethane more as a feedstock in place of naphtha.
The EIA (U.S. Energy Information Administration) expects the increased use of ethane in petrochemical companies to continue. Ethane is used to produce ethylene. Ethylene is used to produce plastics. This trend should increase ethane demand.
Ethane-related infrastructure, including plants to convert ethane to ethylene, has been developing in the United States. This development supports the rising demand for petrochemical companies—a positive for ethane demand. Eventually, it will be positive for prices. Some companies are investing in export terminals for ethane. There’s an attractive export market for ethane in Canada, Asia, and Europe.
Sunoco Logistics Partners’ Marcus Hook project can process, store, and distribute ethane to domestic and international markets. The initial operations in the project’s first phase already started. The second phase should be completed by the end of 2016. Recently, Sunoco Logistics Partners announced the start of its Mariner East 1 pipeline. According to the related press release, the pipeline system “is now transporting both ethane and propane to the Marcus Hook Industrial Complex and is approaching full operations as it completes loading of the first waterborne ethane shipment.”
Next, let’s see how crude oil inventories are affecting MLPs.