A recent post (pay wall) in an oil-and-gas industry blog caught my attention. The author, David Braziel, bemoans the state of the market for “natural gas liquids” (NGLs), particularly ethane. The profitability of ethane has declined dramatically over the last few years.
Why is this relevant to those of us interested in the Dragonpipe (Mariner East 2 pipeline)? The Dragonpipe is designed to carry NGLs. NGLs are byproduct gases derived from the process of fracking for natural gas. They are “liquids” because they are held under pressure to keep them in liquid form for transportation. The main byproduct gas is ethane, so the profitability of the ethane trade is a key in determining the profitability of the Dragonpipe. And right now, ethane isn’t profitable.
To understand the problem with the ethane market, you have to consider what it is used for. More than 99% of ethane is used in refineries that convert it into ethylene. This conversion utilizes a high-temperature process called “cracking”. Ethylene, in turn, is the primary ingredient in many plastics. And ethylene is the real source of the problem. At the moment, Braziel reports, there is a huge ethylene glut. There’s more ethylene available than the plastic manufacturers have the capacity to absorb. As a result, the price of bulk ethylene has dropped from 74 cents/pound in 2014 to 14 cents/pound now.
Because ethylene is overabundant and cheap, no one wants to produce more of it. So the refineries that make ethylene from ethane are cutting back on their ethane purchases. Companies like Ineos (the European refinery operator that has bought the ethane that has been carried by the Mariner East 1) are shifting their focus to more profitable products to the extent they can.
Although Braziel’s analysis is focused on refineries, it also has implications for those who drill and frack natural gas. In some geographical areas, the natural gas emerges from the well with very few of the byproduct NGL gases. That’s called “dry gas”. In other regions, the gas comes out “wet”, meaning it has lots of NGLs. The gas from western Pennsylvania’s Marcellus region is very “wet”. That’s good for drillers when there is a good NGL market, but it’s a problem right now. If the problem continues, the drillers will start to focus their efforts in other parts of the country, where they get almost all natural gas and none of the NGLs.