Ethane Prices Fell Last Week: How It Impacted MLPs
MLPs Close the Week 4% Higher, Supported by Oil Prices
Ethane prices
Mont Belvieu ethane prices fell 0.9% to $0.14 per gallon in the week ending February 26, 2016. Ethane prices fell by 5% to $0.141 per gallon in the previous week. Ethane prices have fallen significantly over the years.
Low ethane prices and higher costs for storing and transporting ethane resulted in ethane rejection. This means that producers leave ethane in the natural gas stream. Extracting ethane isn’t always economical when prices are low. The costs of storing and transporting ethane are higher than the related costs for hydrocarbon gas liquids products. Read What is ethane rejection and why is it important for energy MLPs? to learn more about ethane rejection.
The above graph shows weekly ethane prices over the past six weeks. DCP Midstream Partners (DPM), Tallgrass Energy Partners (TEP), and Summit Midstream Partners (SMLP) are a few of the MLPs engaged in natural gas gathering and processing.
Key developments
Recent developments in the ethane market are expected to have a positive impact on MLPs involved in ethane projects. These MLPs include Sunoco Logistics Partners (SXL), Energy Transfer Partners (ETP), and Enterprise Products Partners (EPD).
One of the developments is higher ethane use from petrochemical companies. Lower ethane prices resulted in petrochemical companies using ethane more as a feedstock in place of naphtha. Enterprise Products Partners forms ~10.4% of the Global X MLP ETF (MLPA). MLPA consists of 30 energy sector MLPs.
The EIA (U.S. Energy Information Administration) expects the increased use of ethane in petrochemical companies to continue. Ethane is used to produce ethylene. Ethylene is used to produce plastics. This trend should increase the ethane demand. The above graph shows large ethylene plants under construction in the US.
Ethane infrastructure
Ethane-related infrastructure, including plants to convert ethane to ethylene, has been developing in the US. This development supports the rising demand for petrochemical companies. This is positive for ethane demand. Eventually, it will be positive for prices. Some companies are investing in export terminals for ethane. There’s an attractive export market for ethane in Canada, Asia, and Europe.
Sunoco Logistics Partners’ Marcus Hook project can process, store, and distribute ethane to domestic and international markets. The initial operations in the project’s first phase already started. The second phase should be completed by the end of 2016.
Enterprise Products Partners is also working on a large ethane terminal in the Houston Ship Channel. It announced the completion of the final segment of its Aegis ethane pipeline in December 2015.
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