While the debate rages over whether exporting liquefied U.S. natural gas is a good idea, stocks of natural gas liquids (NGL) are so abundant, export of some is viewed as a necessity. And in the United States, more chemical sector demand can't come fast enough.
"All those producers that are producing natural gas in the Marcellus and the oil producers out in the Eagle Ford, the Bakken, they're out there working away...Their message: hurry up. You guys need to get some plants on the ground because they're doing a great job behind us as far as developing some very low-cost feedstocks..." Williams' Kelly Knopp, manager of olefins marketing and business development, told a chemical industry audience in Houston.
Multiple pipeline and cracker projects are planned to capitalize on domestic ethane production, and expansion of U.S. propane dehydrogenation (PDH) capacity will help stabilize the heretofore seasonal propane market, he said.
"For ethane, it truly is 'ethylene crackers or bust' because we've got to develop the crackers here or there's no demand for that ethane." About 100,000-150,000 b/d of ethane is being rejected currently, he said at the IHS World Petrochemical Conference.
Multiple projects are proposed to handle ethane from the Marcellus Shale: Sunoco Logistics Partners LP's Mariner West would take it to Sarnia, ON (see Shale Daily, Sept. 8, 2011); Sunoco's Mariner East would facilitate export to Europe (see Shale Daily, Sept. 28, 2012); Enterprise Products Partners Appalachia-Texas Express would carry it to Gulf Coast markets (see Shale Daily, Jan. 5, 2012), and Royal Dutch Shell plc has proposed a facility to crack ethane in Pennsylvania to produce ethylene and derivative products (see Shale Daily, Dec. 28, 2012). Additionally, Williams recently announced its Bluegrass Pipeline, a y-grade system that would carry ethane and other NGLs to the Gulf Coast (see Shale Daily, March 7).
Knopp said a characteristic of all of the Marcellus-focused liquids pipeline projects is that they all would make use of existing pipe in the ground. That's a real advantage the United States has in the shale gas and liquids game: existing infrastructure. "To be able to reverse those lines and change service, it really brings some efficiencies to the U.S. market," he said.
"How much are those existing solutions going to bring to the market? If you stack up the projects, we're still about 700,000 b/d short of infrastructure, and so that's where we looked at our [Bluegrass] pipeline and said there's going to be lots of room, lots of opportunities to bring even more liquids to the market."
But will it make sense to export ethane, which is expensive to liquefy and load onto tankers, as Sunoco's Mariner East would allow, Knopp asked. "...[I]f you look at where the arb[itrage opportunity] is today...it's a wide range. There's roughly a dollar a gallon of value today between what a U.S. Gulf Coast ethane cracker has as far as their feedstock cost and a comparable naphtha cracker. Even if you maintain a portion of that, we think ethane exports will continue to make sense."
The United States is a relatively small player in global ethylene production with about 20% of the world's capacity, Knopp said.
"If you think about it from a market share standpoint, if all six of the major [cracker] projects were built in the U.S., that's roughly two and a half years of global demand, so clearly other regions -- the Middle East and China -- are still building capacity through this time frame, but it's going to take us four to five years to get these crackers on line. We're maybe two, two and a half years of global demand; it's not an insurmountable amount of supply in the big scheme of things."
In other words, it's not going to be an ethane availability issue but rather a price volatility issue as new crackers come online and suck up large amounts of supply overnight, he said. Crackers used to require 60,000 b/d of feed, now they're 90,000 b/d.
"You don't need ethane one day. The next day you need 90,000 b/d for the next 30 years," Knopp said. "Those are really some big step changes in supply-demand. We'll see some volatility there. We think the export market will be robust both on the feedstock side and on the olefins side."
Knopp said the propane market, which has traditionally been heating-oriented and highly seasonal, will be in for some changes, too, when planned PDH units start coming online. "The PDH units are like crackers; they're going to be running at a steady rate, so that's really going to bring some stability to that propane market.
"There's clearly going to be more propane in the U.S. than demand because the traditional propane markets, if anything, are declining. So export will be a key piece of that." Latin America currently is the main destination for U.S. propane exports, but exports will broaden to other markets, Knopp said.
"There's a pretty wide arbitrage open today -- just like ethane, about a dollar a gallon of spread -- so you're going to see these export terminals get built out in the U.S. at a pretty fast clip. If you look at the LPG exports -- propane and butane -- and how that enters the global market, we've got a lot of production coming on in the U.S. But if you look at the forecast for LPG demand, there's a lot of growth, too, a lot especially in Asia."
Key to the Asian market will be the expansion of the Panama Canal, which is to be completed in 2015. "That...is going to cut the trip to Asia by about 14 days and actually starts to put the economics versus the Middle East very close to parity. The U.S. will still be a little bit of a higher cost to transport, but very close. That's going to be a game-changer for the U.S. export market," Knopp said.
World demand for propane for heating and cooking is expected to grow as developing economies mature. The World Bank has called propane one of the key solutions to "energy poverty," Knopp said. He cited International Energy Agency (IEA) data that suggests that a household income equivalent to about US$350 per month is enough to support the purchase of bottled propane for heating and cooking. "The IEA estimates that roughly 40% of the households that are going to be coming into a developed economy are going to be using LPG," he said. And some of that will come from the United States.