Elektrans Global

US Ethane Exports – a welcome development

Ethane is a chemical compound with chemical formula C2H6. At standard temperature and pressure, ethane is a colourless, odourless gas. It is an alkane (single-bond hydrocarbon), second in the series with two carbon atoms, after methane and before propane and butane. Ethane is produced on an industrial scale from natural gas, and as a by-product of petroleum refining.

Ethane is typically transported in gaseous form by pipeline, but can be liquefied by cooling to minus 89°C (boiling point temperature at atmospheric pressure).

The primary use of ethane is in the chemical industry in the production of ethylene by steam cracking; alternative feed stocks are naphtha and liquefied petroleum gases (propane and butane). Ethylene is arguably the most important organic chemical. It is converted to polyethylene; to PVC (via ethylene dichloride and vinyl chloride monomer); to ethylene glycol (via ethylene oxide); and styrene (via ethyl benzene). Ethane is also used as an energy fuel.

The recent rise in US shale gas and oil output has been one of the most significant developments in the oil and gas sectors, transforming the global landscape in terms of production economics and trade.

Shale gas includes methane and higher hydrocarbons collectively known as natural gas liquids (or NGLs). The US Energy Information Administration (EIA), a widely recognized source of data on US energy production, defines NGLs as pentanes and LPG (ethane, propane and butane). According to the American Chemistry Council, “Growth in domestic shale gas production is helping to reduce US natural gas prices and create a more stable supply of natural gas for fuel and power. In addition, it is also leading to more affordable supplies of ethane”

Difficulties in storing ethane have created a glut, resulting in a ‘use it or lose it’ situation. Currently, 200,000 barrels per day are being ‘rejected’ – that is, left in the natural gas stream. Rejected ethane represents a potential surplus to drive increased domestic demand or exports. When domestic demand is insufficient there currently is no mechanism to export the surplus to balance the market. Ethane has historically accounted for more than 40% of the raw unfractionated NGL mix.

The prospects for US ethane exports reflect three key factors: infrastructure, price dynamics and timing

Over all, US ethane production capability is under-used, with approximately 0.2 Mn barrels per day (or 4 MnT per year) rejected in 2013. This under-used capacity to produce ethane will grow in the short term as potential production will rise faster than near-term domestic US demand.

The ‘surplus’ could rise to as much as 6 MnT per year in 2017 and perhaps 12 MnT by 2020.

Annual shipments of 1 MnT of ethane could provide employment for 0.18 Mn CuM of shipping capacity, assuming it is shipped to North Europe, 0.32 Mn CuM if shipped to South Asia and a similar amount to China if the Panama Canal is used.

The window of opportunity to tie up ethane exports and secure tonnage to serve this trade is now open to feed potential markets in Europe and Asia.

The Sheer volumes of US Ethane becoming available and economy of scale considerations have prompted a number of new liquefied gas carrier ship building designs. Contracts have been placed for semi- pressurized refrigerated ethane carriers of 27,500 – 36000 m3 capacity and fully refrigerated large ethane carriers of 80000 m3. The former are for transatlantic service and the latter for shipments to East and South West Asia.

Reliance Industries has signed a long-term agreement with Japan's biggest shipping company Mitsui OSK Lines for transportation of liquefied ethane from North America to India.

Mitsui will manage six very large ethane carriers (ships) that the Indian conglomerate is building at Samsung Heavy Industries. It will supervise the construction of 87,000 cubic meter ships and upon vessel delivery, manage the ships. The vessels are expected to be delivered in the last quarter of 2016. Each ship is priced at around $120 Million.

RIL plans to ship 1.5 million tonnes a year of ethane from its US shale joint ventures to its chemical complex in Gujarat.

India is also geared up for import of Ethane from US. This would benefit the energy and shipping sectors and provide one more source of energy import in the much needed oil and gas sectors.