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Flat Ethane Prices Last Week Led to Ethane Rejection

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Ethane prices

Mont Belvieu ethane prices remained flat during the week ended August 19, 2016, closing at $0.17 per gallon. 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 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.

DCP Midstream Partners (DPM), Summit Midstream Partners (SMLP), and EnLink Midstream Partners (ENLK) are among the midstream MLPs that reject ethane during natural gas processing due to low prices. More than 50% of the holdings of the Alerian MLP ETF (AMLP) provide natural gas–processing services.

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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. 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.

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.

According to Wouter van Kempen, CEO (chief executive officer) of DCP Midstream Partners (DPM), “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.”

Some companies such as Enterprise Products Partners (EPD) and Sunoco Logistics Partners (SXL) are investing in export terminals for ethane to meet the demand for ethane in Canada, Asia, and Europe.

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