Mont Belvieu ethane prices fell by 3.6% during the week ended August 12, 2016. Ethane closed at $0.17 per gallon last week. Ethane prices have fallen significantly over the years.
Low ethane prices and higher costs for ethane storage and transportation have resulted in ethane rejection, that is, producers are leaving 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.
Enable Midstream Partners (ENBL), DCP Midstream Partners (DPM), and MPLX (MPLX) are among the midstream MLPs that reject ethane during natural gas processing due to low prices. More than 50% of the Alerian MLP ETF’s (AMLP) holdings provide natural gas–processing services.
Recent developments in the ethane market are expected to positively affect MLPs involved in ethane projects. 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. 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, which is positive for ethane demand.
According to Wouter van Kempen, DCP Midstream Partners’ (DPM) CEO, “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.”