Heavier feedstocks get profitable-ethane rejection estimates revised upward in USA

Ethane rejection estimates have been revised sharply upward as ethylene cracking margins have reversed to make heavier feedstocks more profitable, as per Argus Media. Ethane rejection in the US is being pegged at 450,000 bpd, according to Peter Fasullo, a principal with consulting firm EnVantage, while other market observers have pegged it even higher, at about 480,000 bpd. Ethane rejection occurs when a gas processor leaves ethane in the natural gas stream rather than extracting it because it is uneconomical to do so. Current estimates come in higher than rejection expectations at the beginning of December, when Fasullo said about 360,000 bpd of ethane was being rejected back into the gas stream. When ethane rejection was thought to be running at about 360,000 bpd, forecasts had rejection peaking at about 400,000-450,000 bpd by 2015-2016. The sudden increase in ethane rejection comes following the shift in ethylene margins, which flipped to make heavier feedstocks, such as propane, butane and light naphtha preferable to ethane. Cheaper ethane prices, coupled with poor cracking margins, led to a deterioration in the economics of recovering ethane. More gas producers were heard increasing their rejection levels in return. The fundamentals that caused NGL prices to tumble this past year are almost the exact opposite of what caused prices to spike in February of last year. Ethane's margins stood well above propane, butane and light naphtha, and ethane rejection was seen at a much lower 300,000 bpd. Although ethane's current value relative to its fuel value stands at a premium, typically indicating more favourable recovery economics, rejection is still being pegged at steeper volumes, leaving greater volumes of ethane on the market. On an oversupplied market, some gas producers at the Texas Gulf coast were heard re-injecting ethane coming off of long haul ethane lines from the Marcellus and Utica regions into the their gas pipelines. This re-injection is being done because it is easier to reject ethane downstream in pipelines along the US Gulf coast than in the Marcellus and Utica shale regions. The re-injection is helping take some volume off the market, but inventories are still abundant. An oversupplied market typically would lend itself to weaker prices; however, emerging demand from Williams Partners' 1.9 bln lb/yr cracker in Geismar, Louisiana, and Dow's light hydrocarbons unit No. 8 at Freeport, Texas, has helped firm prices. Ethane has averaged 18.95¢/USG since the beginning of the year, falling between a high and low of 17.75-20.5¢/USG. Increased ethane rejection, coupled with petrochemical start ups, could help whittle away at the supply overhang. "It is probable that ethane inventories could drop 8mn bl (22pc) by the end of April, provided there are no major unscheduled ethylene plant outages," Fasullo said. It is unlikely that ethane prices will find too much support from petrochemical demand, as springtime propane cracking will increase, which could even cause ethane prices to fall further, according to Fasullo. If ethane continues to stand at a premium to natural gas and if that differential widens, ethane rejection could likely taper back.