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U.S. Exports of 'Lifestyle' Building Block Ethane Expected to Grow

The United States has been producing and exporting more ethane by pipeline and, beginning earlier this year, by tanker from the East and Gulf coasts. Jim Teague, CEO of Enterprise Products Partners LP's general partner, is bullish on continued export growth as ethane is a key building block for the plastics that make the "lifestyle products" the rest of the world wants.

The United States had been exporting ethane by pipeline to Canada (see Daily GPIJune 30Aug. 21, 2015) and more recently by tanker to overseas destinations as pointed out in Thursday's "Today in Energy" research note from the U.S. Energy Information Administration (EIA). The first U.S. ethane export terminal, located in Marcus Hook, PA, about 20 miles southwest of Philadelphia, has an export capacity of 35,000 b/d and began shipping cargos last March (see Daily GPIMarch 10). The second U.S. ethane export terminal, opened by Enterprise in Morgan's Point, TX, recently sent its first shipment to Norway (see Daily GPISept. 1). This 200,000 b/d facility on the Houston Ship Channel is the first ethane terminal in the Gulf Coast region.

Unlike heavier natural gas liquids (NGL) -- such as propane, butanes and natural gasoline -- significant amounts of ethane can be left in the natural gas stream, a situation known as ethane rejection. Currently, the U.S. industry is rejecting about 600,000 b/d of ethane back into the natural gas stream, Teague said Thursday at the 2016 Deloitte Oil & Gas Conference in Houston.

However, by 2020, Enterprise is predicting that there will be a shortage of ethane on the U.S. Gulf Coast. "So what that means is if you're in the Permian or in the Eagle Ford, your margins are going to be really nice and wide," Teague said. For ethane coming from the Eagle Ford or Permian, the trip to the ethylene plants is about 10 cents per gallon. Coming from the Rockies or Marcellus Shale, the cost jumps to 22 cents per gallon, Teague said.

"But those plants and that capacity need that ethane, and if they need that ethane, they'll pay up for it. So they would make a margin...The guys on the Gulf Coast are really going to be happy," Teague said.

During his talk, Teague voiced skepticism about climate change and criticized the attacks that the energy industry has come under.

"Climate Change...It's become somewhat of a religion," he said. "There seems to be no compromise. They think their science is black and white, and I don't. Our business is kind of under assault. It's like, we love our lifestyle, but we hate the commodities that make the lifestyle possible. Bottom line, global gas is going to be a player for my lifetime and particularly natural gas liquids. Simply put, there are markets all over the world that are growing, and they want what we take for granted and they want it now. And there's nothing other than oil and gas that can make that possible.

"Can you imagine a millennial wanting to live without their Yeti cooler? And guess where it comes from. It comes from plastics made out of natural gas liquids."

In the climate change debate, "...nobody mentions natural gas liquids," Teague said. "If you start looking at the products that come out of natural gas liquids, it's pretty obvious why. Because those are lifestyle-type products."

The EIA has collected monthly data on domestic natural gas heat content by state since 2013. The heat content of natural gas in states that receive shale gas produced from the Marcellus and Utica formations, such as Ohio, Maryland, Delaware and Pennsylvania, has been consistently reported at or above national average levels.

Ohio, in particular, receives a higher portion of its natural gas from the Marcellus and Utica formations. However, since early 2016, the natural gas heat content in these states has trended downward, indicating that producers have increasingly been extracting ethane, EIA said in its Today in Energy note on Thursday. The lower heat content has coincided with the start of ethane exports out of Marcus Hook, which sources all of its ethane from the Marcellus and Utica formations.

From 2010 to 2015, the ethane share of total NGL production dropped from 42% to 34%. Although other NGLs have found ready markets close to key shale plays such as the Marcellus and Utica formations, the lack of pipelines and local markets for ethane in these areas has limited ethane recovery.

With more export capability and growth in domestic petrochemical demand, more ethane is expected to be recovered and brought to market, EIA said. The agency's Short-Term Energy Outlook projects NGL production to continue growing, from 3.6 million b/d in May 2016 to 4.0 million b/d in December 2017. Nearly half of the projected total increase in NGL production is ethane. Although an expectation of increasing oil prices and an associated increase in NGL prices contributes to the outlook, a major driver of increased ethane production is growth in ethane demand, both within the United States and internationally.

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