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Ethane Prices Continued to Fall Last Week: The Impact on MLPs

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Ethane prices

Mont Belvieu ethane prices fell for the third consecutive week in the week ended July 15, 2016. Prices fell 2.6% to close at $0.19 per gallon on July 15. Ethane prices have fallen significantly over the years.

Low ethane prices and higher costs for storing and transporting ethane 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 the related costs for hydrocarbon gas liquids products. Read What is ethane rejection and why is it important for energy MLPs? to find out more about ethane rejection.

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The above graph shows weekly ethane prices over the past six weeks. Enable Midstream Partners (ENBL), Tallgrass Energy Partners (TEP), and Summit Midstream Partners (SMLP) are among the midstream MLPs that are engaged in natural gas gathering and processing. These MLPs benefit from a rise in ethane prices.

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), DCP Midstream Partners (DPM), 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.

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According to Wouter van Kempen, DPM’s CEO (chief executive officer), “There are billions of dollars of investments in petchem facilities that are expected to come online in 2017 and 2018, and those crackers crack only one thing. That is ethane. These expansions, along with [BDH] facilities and exports, are anticipated to need ethane in excess of what is currently being rejected by the industry. And to give you some perspective, over 650,000 barrels per day of ethane are currently being rejected.”

Ethane infrastructure

Ethane-related infrastructures, including plants to convert ethane to ethylene, have been developing in the United States. This development supports the rising demand for petrochemical companies. This is 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.

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