MOSCOW (MRC) -- CEO Andrew Liveris said there’s a risk that tighter natural gas markets will hurt the economic assumptions behind Enterprise Products' plan to export US ethane, reported Hydrocarbonprocessing.
Global oil prices will drop and US gas prices will rise during the next five to 10 years, reducing the advantage of producing ethylene and plastics from US ethane, a natural gas liquid, Liveris said in a phone interview. After adding costs for export and import facilities, chemical makers in places such as Europe may have little incentive to buy US ethane, he said.
"It’s a high risk, because the oil-gas arbitrage that we have baked into our assumptions for our investments is half what it is today," Liveris said in the interview. "When you put that arbitrage in place and then put the cost of freight and a receiving facility, that’s a high-risk contract."
Increased production from US shale formations has created a glut of ethane, benefiting chemical makers such as Dow who turn it into ethylene and plastics, while hurting ethane producers. Enterprise said it plans to eliminate much of the estimated 300,000 bpd of excess ethane production with an export facility on the Texas coast.
"There is nothing that we see as concerning about that announcement," Liveris, who is also Dow chairman, said from company headquarters in Midland, Michigan. "The chances this will get built on schedule and impact supply is very low for us."
If Enterprise can fill its export facility, US ethane markets may balance by 2018 when new ethylene plants start production in 2018, followed by more surplus through at least 2020, Bradley Olsen, a midstream analyst at Tudor, Pickering, Holt & Co. in Houston, said in a report.
Dow is investing USD4 billion in Texas and Louisiana to expand production of ethylene and propylene using low-cost natural gas liquids such as ethane and propane. Companies such Chevron Phillips Chemical and ExxonMobil also are expanding ethylene production in the US because of the cost advantage.
Enterprise plans on starting ethane exports in the third quarter of 2016 at a refrigerated facility that will have the capacity to load 240,000 bpd, making it the largest such facility in the world. The Houston-based company said it has executed long-term contracts to support the facility and continues to discuss supplying potential customers.
Oneok, which has been rejecting about 90,000 bpd of ethane at its processing units, stands to benefit from the start of ethane exports, Christopher Sighinolfi, a New York- based analyst at Jefferies, said in a report.
Ineos Group previously announced agreements to import US ethane for European ethylene production.
As MRC reported earlier, Dow Elastomers, a business unit of The Dow Chemical Company, will soon break ground on its planned world-scale NORDEL EPDM (ethylene propylene-diene terpolymer) facility in Plaquemine, La., which will utilize the company’s newest proprietary catalyst technology to enable products with high Mooney viscosity. The facility, which will service customers globally, is expected to come online in 2016 and will leverage Dow’s comprehensive investment plan to serve its downstream businesses through increased ethylene and propylene production in the US Gulf Coast and to connect the company's US operations into feedstock opportunities from increasing supplies of shale gas. Dow is the only EPDM producer globally that has announced expansion in the highly advantaged region.
The Dow Chemical Company is an American multinational chemical corporation. As of 2007, it is the second-largest chemical manufacturer in the world by revenue (after BASF) and as of February 2009, the third-largest chemical company in the world by market capitalization (after BASF and DuPont). Dow is a large producer of plastics, including polystyrene, polyurethane, polyethylene, polypropylene, and synthetic rubber.
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