I guess it had to happen.
Once the ethane started flowing again through the original Dragonpipe (Mariner East 1 pipeline), it was only a matter of time before Ineos’ fleet of eight ethane carriers started calling at Marcus Hook again, closing out the saga of the January ME 1 shutdown. For those who are curious about how the four-month shutdown of ME 1 has affected Sunoco and its customers, I have summarized the situation in this post. Fittingly, Sunoco has borne most of the pain.
For the first time in a long time, one of the Ineos ships is now moored at Marcus Hook. It is the Ineos Inspiration, which arrived this afternoon (May 7). The Ineos ships of Ineos’ ethane fleet were dubbed the “dragon ships” by the Chinese shipyard that built them and the Danish fleet owner that leases them to Ineos. They had been frequent visitors at Marcus Hook since 2016, until ME 1 was shut down in January 2019, due to the appearance of a new sinkhole at Lisa Drive in Exton.
Almost immediately, dragon ship visits to Marcus Hook slowed to a halt. The last full cargo to leave Marcus Hook was Ineos Ingenuity on January 22. On February 14, Ineos Intuition left with a partial load. There have been no more dragon ships coming here until today.
Who feels the pain when the dragon ships don’t come? We tend to think of Sunoco as the company whose products flow through the Dragonpipe. That is not the case: Sunoco is just doing the transportation. The Mainer East system carries “natural gas liquids” (three kinds of highly compressed, highly volatile liquified gases: ethane, butane, and propane). ME 1 has always carried mainly ethane. The ethane, primarily owned by Range Resources, is a byproduct of fracked natural-gas wells in western Pennsylvania; Ineos is the buyer of the ethane. Sunoco runs the pipeline and collects a toll (probably $3-$4 per barrel) for each barrel that is carried from the Marcellus shale to Marcus Hook.
The shutdown was not a big problem for Ineos, which was able to reroute its dragon ships to Houston (where there is abundant ethane—some would say a glut). The ships have been making regular calls there, ferrying the ethane to the refineries that Ineos owns in Scotland and Norway.
Range Resources, the ethane supplier, felt some of the impact of the shutdown, since it had contracts for ethane transport on ME 1. While ME1 was shut down, Range had to make other arrangements to ship its ethane. Some (probably small amounts) came to Marcus Hook by train, but most of it probably went to Texas via the Atex pipeline (which is not owned by Sunoco). But, according to their shareholder reports, the financial impact on Range was limited.
However, the shutdown has been a big problem for Sunoco, which has lost tens of millions of dollars in revenue it anticipated from ME 1. (My estimate: $20-30 million.)
What about the Frankenpipe? Some ethane (along with shipments of butane and propane) has been flowing through the “Frankenpipe” (the cobbled-together set of pipelines which Sunoco refers to as “ME 2”). It was hurried into operation at almost the same time as ME 1 was shut down, providing some much-needed revenue for Sunoco. (Ineos didn’t get any of those shipments because its ethane space was reserved specifically on ME 1). Other customers (Antero being the most prominent among them) have been the beneficiaries; they hold contracts for ME 2 space.
Looking ahead. I assume that Ineos will resume sending the dragon ships here on a regular basis until its contract with Sunoco runs out. Another dragon ship, the Ineos Ingenuity, is anticipated around May 17. But it wouldn’t surprise me if Ineos lost interest in buying Pennsylvania ethane. The company must be tempted by low ethane prices in Houston (in spite of the extra two days required to sail from there to Europe). And Ineos has a huge new ethane carrier, just launched and as yet unnamed, which will be dedicated to the Asian ethane market. It has several times the capacity of the dragon ships. That one will tank up exclusively at Houston.
The prospect of an ethane pipeline system across the state that once looked so promising to politicians and to businesses on both sides of the Atlantic is probably starting to look a lot less attractive. Regulatory and legal missteps by Sunoco, hostility from local residents and elected officials, evidence of severe risks that were never made public and never planned for, lower-cost ethane available elsewhere—these factors and many more combine to make the Dragonpipe a lot less of a sure thing than it seemed a year or two ago.
Great article George. Thanks for bringing us up to speed. Amazing how you keep your finger on the pulse with those Dragon ships! The fact that we’re not looking like such a good deal any more is music to my ears!
The ship looks like it is listing to port. That worries me too.