Ethane shipments to Europe face hurdles

The article below appeared in the October 5th 2016 edition of Natural Gas Daily, a specialist newsletter published by Interfax, focussed on the global natural gas and LNG industry.
Costs may constrain transatlantic ethane trade
By Peter Stewart, Chief Energy Analyst, Interfax Global Energy
The ethane tanker INEOS Insight – blazoned with the slogan “Shale gas for manufacturing”– arrived at the Scottish port of Grangemouth last week to deliver the first cargo of shale gas to the UK. Media reports referring to the shipment as being LNG were incorrect – it was in fact carrying ethane, which is used along with propane and butane as a petrochemical feedstock.
Ethane is a type of NGL – as are propane, butane and pentane – and is primarily used in the production of ethylene. While propane and butane are sometimes used for heating, cooking, and – in some countries – as a vehicle fuel, they are mainly used by the petrochemical industry to produce ethylene and propylene to make chemicals and plastics. All three fuels compete with naphtha, a liquid petroleum product derived from crude oil or gas condensate, which has for decades been the mainstay of petrochemical manufacturing in Europe and Asia.
The gas that arrived in Grangemouth was produced at the Marcellus shale and NGL field in Pennsylvania. The liquids were then transported via a 480 km pipeline to the Marcus Hook plant, which began operations in March. Ethane is prepared there for export under a tolling arrangement, and is refrigerated and loaded under pressure onto special tankers. INEOS plans to create what it calls a ‘virtual pipeline’ of ethane across the Atlantic, and it has chartered eight Dragon-class vessels to do the job.
The growth in United States shale gas and NGL production has led to a renaissance in the country’s petrochemical industry. Dow Chemicals restarted its Hahnville ethylene cracker in Louisiana in 2012. The Energy Information Administration (EIA) forecasts that 9.25 mtpa of new ethylene cracking capacity, using ethane as feedstock, will be added by 2017 – a 27% increase from 2012 levels. In the past, the ethane market has been so small that output was simply reinjected into natural gas fields, a process known as ethane rejection.
Ethane was first exported by pipeline to Canada from North Dakota in May 2014, and US shale producers now have ambitious plans for maritime exports. Marcus Hook has a capacity of 35,000 barrels per day and sent its first shipment to Rafnes, Norway in March 2016.
The EIA forecasts that increased ethane recovery will mean its production will grow much more strongly than that of natural gas. Annual ethane production is expected to increase by 27% between 2015 and 2017, while marketed natural gas production will rise by just 3%. The EIA projects that ethane production will increase by 140,000 b/d in 2016 and by 160,000 b/d in 2017 compared with an annual average growth of 50,000 b/d between 2008 and 2015.
INEOS also plans to start importing shale-derived propane and butane next year, when the Mariner East 2 pipeline is completed. Ethane is also expected to be exported to Asia via the Panama Canal. Houston-based Enterprise Products opened a new ethane export facility at Morgan’s Point in Q3 2016 with a capacity of 240,000 b/d. The new terminal is expected to support exports to Europe and India. Reliance Industries, a Mumbai-based refiner and petrochemical producer, is building terminal and pipeline infrastructure and has ordered six large ethane carriers to transport the fuel. The first of Reliance’s ethane carriers is expected to be completed by the end of 2016.
However, several factors could stymie these ambitious plans – the first being price. INEOS has said it is using ethane mainly because it is cheap. Alternative feedstocks such as naphtha have typically been more costly, but the gap has narrowed since oil prices crashed from their 2014 highs of above $110 per barrel. Ethane is typically priced in dollars per ton on an energy-equivalent basis, using prices at Mont Belvieu in Texas as a reference.
Although domestic prices are low, ethane is more costly to transport than oil, and naphtha is plentifully available in the US and Middle East, where it is produced by refineries as well as from gas-associated condensates. If oil prices remain low, ethane exports may prove to be a costly gamble.
Plant and vessel constraints may also limit the growth of ethane shipments. Steam crackers in Europe and Asia were designed to use primarily naphtha and propane as feedstock for ethylene manufacturing. Although plants can be adapted to run ethane, their full capacities cannot be utilised. “Any shift in the global feedstock mix away from naphtha is likely to be gradual,” an Oxford Institute for Energy Studies report concluded.
Transport may also prove to be a bottleneck if export volumes increase. Ethane is transported in vessels similar to LNG carriers, but the fleet is much smaller. Around 450 LNG carriers were available worldwide at the beginning of 2016, but large ethane-capable ships are in short supply. Ethylene carriers are equipped to transport ethane, but more than two-thirds of them have a capacity of less than 10 thousand cubic metres (Mcm). Only 40-45 are larger, with capacities of 10-36 Mcm, according to Ethylene-capable vessels have semi-pressurized containment tanks where the ethane is cooled to -100C.
(C) Natural Gas Daily, Interfax