[ROCKMAN]

I think it might be helpful to separate the developing ethane dynamic from the natural gas/methane discussions. The huge surplus of ethane in the US that has resulted from the shale boom is producing significant growth in US processing capacity and exports. It will also aid in the appreciation of increasing domestic LNG exports since in many cases it isn't methane being exported for heating and electricity generation. It's increasingly becoming more focused on ethane as an industrial feedstock with a number of applications with plastic production common.

There a number of significant domestic and international developments that began a couple of years ago. We'll catch up on those as we go along. But first some basic data on ethane:

Ethane is an organic chemical compound with chemical formula C2H6. At standard temperature and pressure, ethane is a colorless, odorless gas. Like many hydrocarbons, ethane is isolated on an industrial scale from natural gas and as a petrochemical byproduct of petroleum refining. Its chief use is as feedstock for ethylene production.

At standard temperature and pressure, ethane is a colorless, odorless gas. Solid ethane exists in several modifications. On cooling under normal pressure, the first modification to appear is a plastic crystal. After methane, ethane is the second-largest component of natural gas. Natural gas from different gas fields varies in ethane content from less than 1% to more than 6% by volume. Prior to the 1960s, ethane and larger molecules were typically not separated from the methane component of natural gas, but simply burnt along with the methane as a fuel. Today, ethane is an important petrochemical feedstock and is separated from the other components of natural gas in most well-developed gas fields. Ethane can also be separated from petroleum gas, a mixture of gaseous hydrocarbons produced as a byproduct of petroleum refining.

The chief use of ethane is the production of ethene (ethylene) by steam cracking. When diluted with steam and briefly heated to very high temperatures (900 °C or more), heavy hydrocarbons break down into lighter hydrocarbons, and saturated hydrocarbons become unsaturated. Ethane is favored for ethene production because the steam cracking of ethane is fairly selective for ethene, while the steam cracking of heavier hydrocarbons yields a product mixture poorer in ethene and richer in heavier alkenes (olefins), such as propene (propylene) and butadiene, and in aromatic hydrocarbons.

Ethane occurs as a trace gas in the Earth's atmosphere, currently having a concentration at sea level of 0.5 ppb, though its pre-Industrial concentration is likely to have been lower since a significant proportion of the ethane in today's atmosphere may have originated as fossil fuels. Global ethane quantities have varied over time, likely due to flaring at natural gas fields. Global ethane emission rates declined from 1984 to 2010, though increased shale gas production at the Bakken Formation in the U.S. has arrested the decline by half. Although ethane is a greenhouse gas, it is much less abundant than methane and also less efficient relative to mass.

[ROCKMAN]

And we'll start with the "Peak Oil News" story that prompted this new thread: China Love for US Gas Begins as Trump Rolls Out Red Carpet:

"The exchange highlighted a budding relationship between U.S. gas sellers and Chinese buyers after an agreement struck this month by the Trump administration...The trade deal paves the way for Chinese support into U.S. LNG in both existing and potential future projects...".

That LNG China will be importing from the US will likely primarily be ethane and not methane as some might assume. And the "future projects" might include China becoming a significant player in ethane production from our shales and the processing of ethane into ethylene here rather then in China.

So why is ethylene made from ethane important not only to China but also Europe (which has begun importing US ethane LNG):

"Ethylene made from ethane is widely used in the chemical industry, and its worldwide production (over 150 million tonnes in 2016) exceeds that of any other organic compound. Much of this production goes toward polyethylene, a widely used plastic containing polymer chains of ethylene units in various chain lengths."

IOW ethane derived ethylene is a critical strategic industrial commodity important to the manufacturing industry. An industry that growing economies such as China/India as well as established economies such as in the US/Europe will require increasing amounts of such feedstocks.

[dirtyharry]

RM, Thanks for the info . Greatly helps in understanding that what is being exported /or will be exported will be ethane and not methane .

[coffeeguyzz]

Harry

It is both LNG (methane in liquid form), and ethane - commonly described as one of the components in NGLs (natural gas liquids) also in liquid form.
The attention given to the massive infrastructure being built for LNG export is ALL methane. The product is piped to the liquification plants which have docking facilities for waterborne transport.
This very new development, exporting ethane, is taking place in two locations only, Marcus Hook and Morgans Point.
The ethane is seperated and liquified liquified locally and piped to MH/MP for export.
Of note, this is an almost completely new 'industry', that is, shipping ethane has almost never been done before.
The fact that both the Indians and Chinese are joining the Europeans in this approach should speak volumes to the scope and scale of what is getting underway.

Rock, great idea to bring attention to this endeavor.
Reliance Industries has just completed what is described as the biggest cracker in the world.
This plant is now being supplied with a virtual pipeline consisting of 6 of the biggest VLEC ships on the water making the 3 month round trips non stop.

[ROCKMAN]

Coffee - I have a number of updates I'll post over time. Didn't want to overload folks right now. But to add some more meat to your post...from Sept 2015:

Ethane ships link US shale boom to Europe

When a blue ship with the phrase “SHALE GAS FOR MANUFACTURING” painted on its hull docks at Pennsylvania’s Marcus Hook terminal later this year, it will open a new phase in world energy markets."

"The vessel and its twin were built to ferry a hydrocarbon called ethane from the shale basins of the US to industrial plants in Norway and Scotland. Theirs will be the first voyages in a nascent seaborne market for ethane, a petrochemical building block for plastic bags, antifreeze and other goods."

The rest of the story at:
https://www.ft.com/content/9c4ea650-51e ... d50a74fd14

[kublikhan]

$this->bbcode_second_pass_quote('', '�')��U.S. energy landscape is changing on the back of cheap natural gas from shale deposits, which is turning producers away from “offshoring” energy-intensive industries. The discovery of shale gas is perhaps the greatest development in the modern era. Shale gas is a huge – and potentially long-term – competitive advantage for U.S.-based companies” - DOW CEO

“The feedstock cost for new crackers in [Saudi Arabia] will be around $6/MBtu as there’s not enough ethane availability … this cost will be much higher than the US gas price, which is currently at $3.50-4.00/MBtu”

“The shale gas revolution initiated in the US… is now reshaping not only the energy industry, but global economy and geopolitics as well.” This could cause “a great deal of discomfort” to Asia’s petrochemical sector.

“The shale gas revolution in the US has turned the global petrochemical industry inside out…Basic petrochemicals can now be made in the United States for about half the cost as in Europe”

Global Chemical Industry
U.S. Land of Opportunity
• Highly profitable due to Shale Gas
• Unique multi decades cost advantage
• Low political risk
• Chemical industry acceptance
• High manufacturing productivity
• Growing labor pool
• Strong supplier base & competition

Shale Gas Conclusions
• The U.S. Shale Gas revolution has caused a Global
Chemical Industry revolution
• Chemicals and manufactured products can be
produced far cheaper in NA

[ROCKMAN]

Praise Dog!!! We have a new acronym to play with...LEG. But ya gotta read the rest to learn it. As an extra bonus: we got a new f*cking fuel to power an ocean going vessel that's not DIESEL!!! From

http://m.marinelog.com/index.php?option ... Itemid=230

MAY 16, 2017 — The world's first ME-GIE (-Gas Injection Ethane) two-stroke engine has successfully passed gas trials on board the Gaschem Beluga, an LEG (liquefied ethylene gas) carrier, while sailing between Houston and the Bahamas.

The Mitsui-MAN B&W 7G50ME-C9.5-GIE engine is the first in a series of two engines acting as main propulsion for in two 36,000 cu.m LEG carriers ordered from shipbuilder Sinopacific Offshore Engineering in China by Hartmann Reederei of Germany and Ocean Yield of Norway. No gas leaks were observed while ethane levels in the double-walled piping were constant and comfortably under the gas's LEL (Lower Explosive Limit).

The Gaschem Beluga subsequently crossed the Atlantic on its way to Europe, powered solely by ethane, and has already achieved a total of 550 operational hours.

[ROCKMAN]

I didn't want to overload the thread so quick but suddenly ETHANE has become a very hot buzz word. Gotta wonder how much of economic boost this might give to the shake drillers. From last week:

http://wvpublic.org/post/federal-lawmak ... s#stream/0

Federal Lawmakers Look to Build Ethane Field of Dreams

Legislators from Ohio and West Virginia are hoping to capitalize on the natural gas boom by building a new ethane storage hub in the region. A bipartisan group of federal legislators held a conference call this week to express enthusiasm for an idea to build an ethane storage and distribution system. Legislators hope a stockpile of ethane - which is a derivative of natural gas and feedstock for plastic and chemical industries - would attract and stimulate economic growth in the Ohio Valley region.

“This is a game changer for us,” said Senator Joe Manchin from West Virginia. “The old field of dreams? Build it and they shall come?”

[ROCKMAN]

And just a quick note since the Rockman looks straight at a massive ethane cracker plant expansion still under construction at Exxon Mobil’s large Baytown complex right across the highway from the Rockman.

Exxon Mobil has just completed a large plastics plant expansion as part of a massive, multibillion-dollar petrochemical growth effort just 10 miles down the road from the Rockman. It finished construction of two plastics facilities at its existing plant that will add 1.3 million metric tons of annual capacity to manufacture the world’s most common plastic, polyethylene. The plastic is created in the form of tiny plastic resin balls to be shipped overseas to meet the rapidly growing demand in nation’s with expanding middle classes like China and India.

[Subjectivist]

While today Ethane us mostly used for plastic manufacturing that wasn't always the case. Even now some countries leave it mixed in the Natural Gas as a fuel component. Some years ago I learned that in northern Europe the Natural Gas supplied to homes and bussiness has a higher energy content than the North American variety. The reason was in North America the gas is fractionated at the components are sold off seperately but they are sold together as fuel, or at least they used to be, in Europe.

[ROCKMAN]

Sub - Yep, time for a little more detail. When you see NG selling for $X per MCF that isn't necessarily the price everyone is getting. That's the price of of an MCF of NG that has 1 million British thermal units...Btu's. Most NG has either more or less then that amount. So when I sell NG there's a "Btu adjustment" applied. Lower price for less then 1 mm Btu and a higher one for more. A lot more NG liquids get a better price.

But if the NG contains a great lot more then methane you won't get a fair price so you rent a JT plant to install at the wellhead and collect/sell the liquids yourself. But even if you don't the buyer will run all the NG he buys thru his own plant. IOW these days all the "goodies" get "stripped" before the NG gets to the end user. The goodies being ethane, propane, butane, isobutane, and pentane.

JT Plant: "Joule-Thomson plants prepare gas for pipeline transmission by removing hydrocarbon liquids that provide an additional revenue stream."

So let's talk about prices. I have not yet developed a sense of how much the ethane yield from the shale plays helps the economics. Time will tell. But here's an interesting report from last Sept: "The increase in outages is due to the age of US ethane crackers. More than two-thirds of US capacity is more than 30 years old....But planned outages could rise further as US producers run their plants harder to maximise returns. Meanwhile, ethylene will remain tight in the short- and medium-term, as unplanned outages among the nation's aging cracker fleet are here to stay."

{"aging cracker fleet"...sounds like a bunch of old white men out for an afternoon sail. LOL}

Planned and unplanned outages as a percent of installed capacity now stand at 6.6%, he said. That compares with an average of 6.2% during the past two decades. Unplanned outages could rise further as US producers run their plants harder to maximise returns.

Taken together, ethylene demand growth from 2015-2019 should outstrip supply growth, he said. As such, Alembic expects the ethylene cycle could peak as early as this year.

US producers stand to benefit disproportionately during this cycle because they rely predominantly on gas-based ethane as a feedstock, while much of the world uses oil-based naphtha. During past ethylene peaks, the US did not enjoy such a large cost advantage as it does now.

{But our cost advantage might be slipping away as more LEG tankers haul exports from the US}

While ethane prices are expected to rise some still expect that advantage to persist. Under the most draconian circumstances some expect ethane prices would reach 40 cents/gal. That forecast also assumes that propane will impose a price ceiling on ethane. The base-case scenario calls for ethane to reach 35 cents/gal by 2018. This assumes Brent would reach $55/bbl and natural gas would reach $2.75/MMBtu. Current ethane prices are 17.50 cents/gal, according to ICIS.

{So a doubling ofvthe 2016 price next year. Presumably why $BILLION are being spend on new crackers and LEG tankers.}

[dirtyharry]

RM, I was the first to appreciate the info u provided . My POV is a simple one . Is there any money in this ball game or is it just a case of "shale gas " and " shale oil" of " What is technically possible ,is not always economically feasible." Seems like that to me .All projections are way out of whack .As Tom cruise says "Show me the money ".
{So a doubling ofvthe 2016 price next year. Presumably why $BILLION are being spend on new crackers and LEG tankers.} This from RM ??? When did u forget Dr Barlett ?

[ROCKMAN]

Harry - Dr. Bartlett? I worked with a Sam Barlett 35 years ago. LOL.

I'm still working on the economic analysis. But not from the ethane processing POV. The Rockman don't really care if they lose their asses. LOL. The reason I'm focusing on the ethane (and other NGL's) is how it might positively effect the shale drilling economics: with its added enough value to result in a lot more drilling that could lead to more methane production? Good for the consumers but not so good for the Rockman. LOL.

Right now I'm struggling to find out how much NGL (including ethane) revenue enhances the Marcellus Shale economics. Since the MS represent the source of much of the increase in shale production it should be fairly representative.

But if the the push for more ethane cracking does add much to the drilling bottom line it won't be that important in these parts. OTOH the story is developing some international trade angles IMHO.

[ROCKMAN]

OK, starting to get a handle on the potential impact of the increasing demand fore ethane. So some generic numbers:

GPM: gallons per 1,000 cuft (1 MCF) of NG:
Marcellus Shale: 4-8
Eagle Ford/Bakken: 4-9

Composition of 5 GPM NGL:
Ethane - 65%
Propane - 20%
Normal butane - 10%
Natural gasoline - 5%

So again just a ball park number:

1 MCF of NG = $3.30
5 gallons NGL =
5 gallons NGL = 3.25 gallons ethane = $1.07.

We'll ignore the other NGL's since they have been stripped and sold all along. But much of the ethane had been "rejected"...left in the NG.

Again just some rough estimates: for every bcf (1 million MCF) of MS production yields 3.25 gal X 1 million = 3.25 million gal ethane = $1.07 million.
And 1 bcf NG = $3.30 million ($3.30/MCF)

So for every MCF of MS production sold $3.30 comes the methane and $1.07 comes from the ethane and the rest of the value (about $2.20) comes from the rest of the NGL's.

So: $3.30 + $1.07 + $2.20 = $6.57.

Thus about 16% of the value of MS sold is represented by ethane sales IF 100% WERE RECOVERED and sold. Of course that depends on the exact price of the NG and the individual NGL.

From 1985 thru 2011 ethane production stayed fairly constant at 20 million bbls. But since then has increased to 52 million bbls.

https://www.eia.gov/dnav/pet/hist/LeafH ... TSTUS1&f=M

But to know the impact of all this new ethane cracking capacity we need to know how much IS NOT being recovered. Here's a rather convoluted calculation:

https://www.icis.com/resources/news/201 ... rejection/

Which concludes that "596,000 bbls/day represents a pretty good approximation of the amount of ethane that was rejected for the month of February." So 596,000 bbls/day = 25 million gallons = $7.5 million/day @ $0.30/gallon = $2.7 BILLION/YR potential sale.

But the cracking is turning ethane into ethylene:

Now have to convert gallons of ethane to #'s: $0.30/gal = $0.10/#. And it takes 1.3# of ethane to make 1# of ethylene.

So it costs about $0.15/# of ethane to make $0.42/# of ethylene. IOW the ethylene has a market value about 3X the value of the ethane. So if all the rejected ethane is recovered and used to produce ethylene the final value is around $8 BILLION/YR.

Which probably explains why companies are spending many $billions for new crackers to convert ethane to ethylene.

I hope all you butt heads appreciate this: geologists are not designed to do this much f*cking math. LOL.

[kublikhan]

Looks like all those US crackers coming online between 2017-2019 are going to suck up much of the surplus ethane in the US and drive it's price up. Good news for upstream. Bad news for the crackers.

$this->bbcode_second_pass_quote('', 'U')S chemical producers will suffer from big increases in ethane prices as demand exceeds supply from the second half of 2018. As the current wave of new chemical production capacity comes onstream from 2017-19, demand will steadily outstrip supply, leading to hikes in ethane prices from current levels of around 20-25 cents /gal to reach as much as 55 cents/gal or more, according to Cowen's report, called "NGL Bubble Bursts: Chemical Earnings At Risk".

Cowen forecasts that a deficit of 200,000bbl/day of ethane by 2019, which could lead to ethane prices breaking their link to natural gas and becoming more aligned to naphtha. This could lead to significant earnings headwinds for US chemical producers in terms of volumes as well as export economics.

As the new wave of US production comes onstream, competing with capacity increases in the Middle East and China, earnings before interest, tax, depreciation and amortisation (EBITDA) margins for US polyethylene (PE) production could shrink to below 20 cents/lb ($441/tonne) from current levels of over 35 cents/lb. This margin compression will begin to take shape in early 2018 and reach its apex in the second half of 2019, the report said.

Companies most negatively affected would be Dow Chemical, LyondellBasell and Westlake. However, some upstream integrated oil, gas and chemical majors might stand to have chemicals losses offset by higher natural gas liquid (NGL) prices.

Cowen's anaylsis suggests the low price of oil over the last 12-18 months has slowed growth in drilling activity and has put NGL supply growth below its original trajectory. “Much of the focus of today's drilling activity is on oil, which is not as ethane rich. As a result, drilling is not adding as much NGLs to the pool,” adds the report. Cowen analysts also believe that lack of infrastructure development will stop recovery of much stranded ethane. “Because of the locations of the ethane, we find that there will not be enough pipeline capacity to get all of these rejected barrels to the US Gulf Coast, where they are needed.”

However, as the new wave of US ethylene and PE supply comes onstream, domestic overcapacity will force producers to export more, pushing global prices downwards. “At the same time costs will rise on the tightening supply/demand environment for the consumed feedstocks, leaving a situation where margin could compress sharply as ethylene capacity comes online.”

[coffeeguyzz]

RM/Kub

Little complicated area, no?

Couple observations ...
Kub, the descriptions from the US chemical companies should indicate both how momentous and bullish all this shale gas supply is.
But there is more ... Much more.

The products produced from the crackers are the fundamental material for a wide array of manufacturing industries who will then have a financial incentive to set up shop near their supply.
Think a repatriation to Appalachia or the Gulf from many foreign companies.
Furthermore, the dry gas component of this stream, methane, is now fueling state of the art power generating plants giving these areas the lowest cost electricity on the planet.

There is a reason that Iceland, way out in the Atlantic with NO native bauxite, is one of the Bigger producers of aluminum in the world. (cheap, abundant electricity).
Rock, one thing - of probably a gazillion - to be mindful when crunching the economics, is the wide variability of product. composition in the Marcellus.
Up in the northeast, Susquehannah county, gas is 99% methane.
Also, New wells are producing 5 billion cubic feet 6/9 online.
Prolific.
In the southwest, Greene and Washington counties, as well as a chunk of West Virginia, btus exceed 1,200. Liquids are about 70% of stream.
This has given operators some flexibility on what/where to drill.
Antero and Range have some pretty informative slides on the investor relations presentations.
I realize there is more than a little rah rah in these presentations, but there CAN be a ton of useful, relevant info.
Should go without saying, associated wet gas, especially from Oklahoma, but EF and Permian also, will contribute to supply.

[ROCKMAN]

Coffee - All I could do is make a very rough approximation of the ethane dynamic in play at the moment. But I wouldn't try to push it much more then 12 months out. And then the shale gas/NGL dynamic is far from static beyond 12 to 18 months or so IMHO. And then we have the uncertain future exports of ethane via LEG tankers AND ethylene in bulk carriers.

And that's only half the story: then we have the petrochemical industry and plastic makers who will be watching how the ethane crackers and ethylene producers react to the evolving supply/pricing dynamic. And then the manufacturers who buy those products will be watching how the petrochemical and plastic producers react to the evolving supply/pricing dynamic. And finally the consumers who buy those end products will be watching how the manufacturers react to the evolving supply/pricing dynamic.

And naturally the shake drillers will be watching how the end users, the consuming public, of that long supply chain will respond. And if that grand dynamic isn't complex enough there are the different time lags inherent in such a system.

But if you step back and squint your eyes the Big Picture might look familiar...like the oil dynamic we've seen the last 10 to 12 years. Which doesn't look that different then the Big Picture we saw from the 70's into the 80's. Certainly some specific difference but all had one great commonality: at any one point in time from the inside of that always unstable beast very few correctly predicted the future a handful of years ahead...at most.

[kublikhan]

Not to go too far off topic, but it reminds me a bit of what happened with polysilicon a decade ago. Climbing demand causes polysilicon prices to rise. Rising prices mean climbing profit margins for producers. High profit margins invite competition and new supply. A surge of new supply causes prices to fall. Weaker producers fall into bankruptcy.

$this->bbcode_second_pass_quote('', '[')b]2006 - Market observers reckon that profit margins for producers of high-purity polysilicon are now around 50 percent.

High margins attract new entrants
That‘s exactly why Tom Werner believes that capitalism will come into effect. High margins attract new entrants. No less than half a dozen new projects have been announced in China in the past few months, most with a capacity of 3,000 MT and more. The large, established silicon producers have now realised that the photovoltaic industry is growing into their most important customer. By 2007 at the latest, silicon consumption in the solar sector will exceed that of the semiconductor industry for the first time.

[ROCKMAN]

k - Not really off topic if we focus on the Big Picture: the cyclic nature of all commodities. Details vary such as improving technologies impose an altered dynamic just as depletion of naturally occurring resources does.

How the ethane/ethylene dynamic effects the global economy (and vice versa) is just one more piece of the Big Puzzle.

[ROCKMAN]

What the Rockman finds very interesting is how the ethane/ethylene dynamic is spurring significant heavy industry expansion into areas that have seen such activities slip away from them for decades. From:

https://stateimpact.npr.org/pennsylvani ... port-says/

Pennsylvania could support four more ethane crackers

"Pennsylvania has the capacity to attract up to four more ethane cracker plants because of its abundant reserves of NGLs and its proximity to major markets for plastics feedstock. A report projects that more petrochemical companies could decide to invest in Pennsylvania, following the lead of Shell Chemicals which is building the state’s first ethane cracker plant in western Pennsylvania to take advantage of NGLs from the nearby Marcellus and Utica Shales. The need to develop the supply of NGLs from shale beds could also draw investment of $2.7 billion to $3.7 billion.

Pennsylvania currently has a sufficient supply of NGL to support a world-class petrochemical industry. Its major competitive advantage is access to an expanding supply of low-cost natural gas. Pennsylvania with abundant NGL (particularly ethane and propane) is capable of supplying up to four additional world-scale, integrated ethane crackers similar in size to Shell Pennsylvania Chemicals.