Partner & Global Projects Department Chair
Baker Botts LLP
14:00 - 14:25
Wednesday, 18 September 2019
S1.5 The Global Ethane Market: Lessons from the Global LNG Trade
Ethane is a single component of the natural gas value chain but an important one for petrochemical and industrial downstream consumers. The ethane trade has been a regional business, as ethane supplies were either produced and delivered regionally to ethane crackers to produce ethylene or were consumed regionally by other industrial users. Ethane is not typically found alone in mineral deposits but is part of the natural gas and NGL streams. With the reduction of ethane supplies in Europe and due to a paucity of ethane resources in China, and due to the existence of ethane crackers for the local production, global downstream business have begun to explore the export of chilled ethane from new supplies in the U.S. to meet European and Chinese ethane supply demands.
Ethane supplies in the U.S. have typically been sourced from the stripping of natural gas liquids and the delivery of ethane in pipelines to customers or to regional underground storage caverns for later distribution via pipelines to downstream customers. However, with the astonishing growth of natural gas production, the ethane supply market in the U.S. has grown significantly, making significant quantities of ethane available for potential export. Despite this opportunity, the market has grown more slowly than would have been expected, as ethane buyers have had difficulty arranging supplies of chilled ethane in accordance with their desires for FOB loadings on normal industry shipping terms. Further, ethane export projects have tended to reflect the standards and practices followed by ethane gas pipeline suppliers and or oil terminalling facilities, rather than standards and practices that would enhance the growth of the ethane export market.
The closest analog to the export of ethane is not pipelines or oil/LPG export facilities but LNG export projects. Ethane exports and LNG exports are not perfect analogs, but LNG export practices and standards likely form a better starting place for consideration of how to how to develop and own the ethane chilling, loading and storage facilities, how to organize ethane feedstock supplies to such facilities, how to sell ethane under long-term offtake contracts and how to organize shipping and other operations in the most efficient manner. Given the small size of the market in the past, there was less incentive for the ethane industry to consider a more standardized approach to ethane export projects, but the ethane export business is coming of age, and it is time for the industry to consider some best practices that will assist with the development and management of these projects and the related ethane sales.
This paper will (i) provide an overview of the ethane supply market in the U.S. and the demand markets outside the U.S. and the drivers for ethane exports; (ii) review the legal environment around ethane exports; (iii) review the facilities, investments and contractual arrangements needed to support ethane exports; and (iv) examine lessons learned form the global LNG trade that might inform the development of the ethane export market.