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Gauging the Impact of Ethane Prices on MLPs

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Ethane prices

Mont Belvieu ethane prices remained flat for the second consecutive week at nearly $0.18 per gallon in the week ending March 25, 2016. Ethane prices have fallen significantly over the years.

Low ethane prices and higher costs for storing and transporting ethane have resulted in ethane rejection. This means that producers leave ethane in the natural gas stream because extracting ethane isn’t always economical when prices are low. Additionally, the costs of storing and transporting ethane are higher than the related costs for hydrocarbon gas liquids products. (Check out “What Is Ethane Rejection and Why Is It Important for Energy MLPs?” for more on ethane rejection.)

Gauging the Impact of Ethane Prices on MLPs

The above graph shows weekly ethane prices over the past six weeks. Enable Midstream Partners (ENBL), Tallgrass Energy Partners (TEP), and Cone Midstream Partners (CNNX) are a few of the MLPs engaged in natural gas gathering and processing.

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Key developments

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).

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. That said, the EIA (US Energy Information Administration) expects the increased use of ethane in petrochemical companies to continue. Ethane is used to produce ethylene, and ethylene is used to produce plastics. This trend should increase the ethane demand.

Ethane infrastructure

The ethane-related infrastructure, including plants to convert ethane to ethylene, has been developing in the US. This development supports the rising demand for petrochemical companies—a positive thing for ethane demand, which would eventually be positive for prices. Some companies are investing in export terminals for ethane. Notably, there are attractive export markets 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 commencement of 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.” Sunoco Logistics Partners forms ~0.53% of the Multi-Asset Diversified Income Index Fund (MDIV).

Continue to the next part for the latest look at crude oil inventories.

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