MOSCOW (MRC) -- A fall in US ethane availability by 2021 due to the effects of the COVID-19 pandemic and the collapse in oil prices will coincide with an increase in demand for the gas as feedstock from petrochemical producers, leading to tighter market fundamentals and a forecast rise in US ethane prices, reported Chemweek with reference to IHS Markit.
The major slowdown in upstream activity as oil and gas producers shut down unprofitable production due to the low oil price means US crude output is expected to fall from its recent peak of 13 million b/d to 9 million b/d in 2021, with associated gas output to plunge by about 10 billion cubic feet/day. Ethane supply will fall from 2.7 million b/d in 2019 to 2.6 million b/d in 2021, says IHS Markit’s Midstream Oil and NGL Insight report.
"This number is a big shift from our view prior to the COVID-19 pandemic, which estimated ethane supply for 2021 to be about 3 million b/d," it says. "At the same time, ethane demand is expected to increase, both from higher operating rates and from new cracker startups, as global demand recovers from the COVID-19 pandemic, increasing the need for ethylene. Nonetheless, total ethane demand will still be lower than previously expected," it says.
An expected worldwide post-pandemic recovery in demand for petchem products will prop up ethane demand by 2021, resulting in US ethane rejection falling by an estimated 300,000 b/d from 900,000 b/d in 2019 to 600,000 b/d in 2021, and further to almost 450,000 b/d in 2023, according to the report.
Tighter ethane fundamentals and higher natural gas prices going into 2021 as dry gas plays ramp up production to cover the anticipated shortfall in associated gas production will result in higher ethane prices, with IHS Markit forecasting ethane prices to increase from 18.7 cts/gal in 2020 to 32.5 cts/gal in 2021, "as all available ethane from regions closer to the US Gulf Coast will be required to meet demand." The result is a "double whammy for ethane prices, with the gas price floor rising and ethane markets tightening," it says.
Access to low-cost ethane feedstock has been a driving force behind the US petrochemicals investment boom that has seen a wave of new steam crackers and other associated petchem facilities built on the US Gulf Coast in recent years, with US producers benefiting significantly from substantial cost advantages over more costly naphtha-based facilities in Europe and Asia.
As MRC informed earlier, in 2017, INEOS and China’s SP Chemicals agreed long term supply agreement for ethane from US Shale Gas. Agreement includes construction of new carrier ship, the largest ethane carrier ever built.
We remind that in January 2019, INEOS announced Antwerp as the location for its new petrochemical investment. The EUR3 billion investment will be the biggest ever made by INEOS and is first cracker to be built in Europe in 20 years. The investment is a game changer for the chemical sectors and will bring huge benefits to the Belgium and wider European economies. Thus, Antwerp, Belgium will be the location for its multi-billion Euro project for an ethane gas cracker and world-scale PDH unit in Europe.
Ethylene and propylene are feedstocks for producing polyethylene (PE) and polypropylene (PP).
According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 721,290 tonnes in the first four month of 2020, up by 4% year on year. Low density polyethylene (LDPE) and linear low density polyethylene (LLDPE) shipments grew partially because of the increased capacity utilisation at ZapSibNeftekhim. At the same time, PP shipments to the Russian market totalled 347,440 tonnes in January-April 2020 (calculated by the formula production minus export plus import). Supply exclusively of PP random copolymer increased.