There is reason to think that the giant petrochemical firm Ineos is losing interest in the Dragonpipe (the Mariner East pipeline system) and in ethane from the Marcellus shale. If that is true, it is a recent development and it remains to be publicly confirmed. In this post, I’ll provide the reasons I suspect an Ineos change of heart.

Here’s the background: at the beginning of this decade, two problems emerged that created the business proposition for the Dragonpipe. On one hand, drillers in the Marcellus shale in western Pennsylvania were producing large amounts of ethane (a byproduct of their natural gas wells) that they were desperate to get rid of. There were no local markets for it. On the other hand, Ineos had refineries in Scotland and Norway that were running out of the ethane they needed to operate. Supplies from gas wells in the North Sea were dwindling.

That situation provided the business opportunity that Sunoco and Ineos seized upon. In 2014, Sunoco reversed the flow of an existing 1930s-era pipeline (which it rechristened “Mariner East 1”) to transport ethane to Marcus Hook; Ineos commissioned a fleet of eight ethane carriers (the “dragon ships”) to transport that ethane from Marcus Hook to Scotland and Norway. By the end of 2016, the fleet had begun regular ethane runs between Marcus Hook and Europe. And that was pretty much the entire Dragonpipe business model through the end of 2018.

In late December of 2018, Sunoco cobbled together a bunch of old and new pipeline segments to create “ME2”. That launched a second business: transporting propane and butane for non-Ineos customers. But the dragon ships continued to carry ethane to Europe for Ineos. When ME1 was temporarily shut down, Ineos diverted the ships to Houston. Texas had plenty of cheap ethane, but it was a longer trip to Europe from there; and the ships returned to Marcus Hook once the Pennsylvania ethane was flowing again. The ships continued their pattern of shuttling ethane between Marcus Hook and Europe until recently.

Since mid-2017, when I started paying attention to them, the ships rarely called at ports other than Grangemouth (Scotland), Rafnes (Norway), Marcus Hook, and Houston. There were occasional side trips within Europe to ports where Ineos had facilities; and in mid-2018, one ship made a side trip to Dakar, Senegal, but soon returned to the standard routes.

The dragon ship routes are changing. Now, the routes are changing dramatically. Ineos, which is privately held and currently headquartered in Switzerland, is secretive about its business. It has not made any public statement about a shift in focus. But the movements of its ships reveal the change. As I write this (September 7, 2019), only three of the eight dragon ships are still following their former “standard” route, between Marcus Hook, Scotland, and Norway.

The first sign of change to come was in October of 2018, when the ship Ineos Invention left Europe for the Suez Canal en route to Singapore and on to China. It then returned to Houston via the Panama Canal. Then, in January of this year, Ineos Independence made the same trip. The fact that both of these trips originated at Ineos European refineries suggests that their cargo might have been ethylene (a major product of the refineries) or some other gas, rather than ethane.

Then, in June of this year, Ineos Inspiration sailed from Houston to Korea and China and back, this time using the Panama Canal both ways, and presumably carrying ethane.

Marlin with dragon 9-7-19
The new Ineos Marlin is decorated with an appropriately huge “dragon” image made of vinyl. Notice that this newest Ineos ship bears the slogan “Keep Our Oceans Clean”, despite carrying ethane, the raw material for single-use plastic. This reflects a new Ineos PR initiative. Earlier dragon ships had industry-related slogans like “Shale Gas For Progress” and “Shale Gas For Manufacturing”. Photo credit: X-Treme Creations.

The Ineos Marlin: designed for the China route? In the spring of this year, a huge new Ineos ethane carrier was launched.  It is called Ineos Marlin, and it has almost three times the capacity of one of the dragon ships. It signals a new direction for Ineos because it can’t be used on the route between Marcus Hook and Europe. It is too big for the ports at the Ineos refineries in Scotland and Norway; and although it can reach Marcus Hook when empty (it did so once, in early July), it can’t take on a full cargo of ethane there because that would make it too deep for the Delaware River.

It seems clear that Ineos Marlin is designed for the Houston-to-Asia route, and its first major voyage (from which it is currently returning to Houston) involved stops in China and Korea. An equally large sister ship is due to be launched soon, and it too will surely be used to transport ethane from Houston to Asia.

It seems clear that Ineos’ focus is increasingly on Asia. Aside from the Ineos Marlin, three of the original dragon ships are either returning from Asia or heading out through the Panama Canal. (Three others are still on the “standard” route, and two are currently idle, at anchor.)

What does the Asian focus mean for the Dragonpipe? We can’t know what Ineos management is thinking. But there is a glut of ethane and its downstream intermediate products in Europe, and European opposition to single-use plastic (virtually the only use for ethane) is gradually rising. That means companies involved in the ethane industry need to look elsewhere for markets. Many are pinning their hopes on China, where a rising middle class may create a rapidly increasing demand for plastic. That seems to be Ineos’ strategy.

Other companies have recently been picking up the slack at Marcus Hook by sending ships to load ethane there. They have departed for diverse destinations: Sweden, the Netherlands, Morocco, Togo, France, the Philippines, Nigeria, and more. But ultimately, it seems likely that the fate of ethane transportation via the Dragonpipe will be closely tied to the European market for ethane. Ethane demand in non-European markets will be more efficiently served by ships coming from Texas than from Marcus Hook.

If the European market for ethane continues to decline, Sunoco will face a decision about how to use the Dragonpipe. Two of the possibilities: the company can focus more on using the Dragonpipe for transporting propane and butane (for which there are domestic markets) rather than ethane, or they can create their own local domestic market by building an ethane cracking facility at Marcus Hook, a project that would cost billions and take many years. Neither of those options would change the risks associated with the Dragonpipe.

A third possibility: Sunoco will become tired of dealing with the regulatory and legal problems (and perhaps additional pipeline shutdowns) resulting from its slipshod construction and operational practices in Pennsylvania, and it will abandon the Dragonpipe entirely. Or the public will become so outraged by the risk of disaster that the authorities will have no alternative but to shut it down permanently. That is what they should have done years ago.