The Enterprise Ethane Terminal Is Quite Large (UPDATED)
As you may have heard, Enterprise Products Partners plans to build an ethane export terminal in Texas. It will have a capacity of 240,000 barrels of ethane per day.
Let’s convert that number from the oil perspective into the petrochemical one. According to John Stekla, formally the olefins guru at IHS and now with Williams Cos., 1 million metric tons of ethylene production consumes about 63,000 barrels per day of ethane. So that means that the Williams facility, IF it ran at full capacity would export enough ethane to feed 3.8 million metric tons of ethylene production. That is more than two new world scale ethylene plants.
You may be wondering why I have CAPITALIZED, italicized, and bolded the word if in the preceding paragraph.
Dow CEO Andrew N. Liveris, at least, is criticizing the project and doesn’t seem to think it would run at full capacity.
Dow reflexively complains about every development that could mean petrochemical feedstocks leaving the U.S. They have been fighting hard to block Department of Energy approval of LNG export facilities to non Free Trade Agreement countries.
Bloomberg reporter Jack Kaskey knows all this and asked Liveris for his take on the ethane export terminal. Upon hearing an utterance that ends in a question mark, Liveris started talking.
“It’s high risk, because the oil-gas arbitrage that we have baked into our assumptions for our investments is half of what it is today.”
In other words, oil prices will decline relative to gas prices, which would make the export terminal less attractive.
“There is nothing that we see as concerning about that announcement,” he added. (Every time “concerning” is said when “disconcerting” is meant, a kitten falls down a well.)
Chemical Notebooks take: If the arbitrage is so fleeting, why is Dow building so much ethylene and propylene capacity on the premise of an enduring advantage? Moreover, if Enterprise truly intends to build the terminal then Enterprise believes that the project will earn its cost of capital. For that matter, companies such as Ineos seem to think that importing ethane from the U.S. also earns the cost of capital of building receiving facilities. What we have here is a mere difference of opinion. Either that, or Liveris isn’t being serious in his assessment or Enterprise isn’t really considering building the terminal.
I would add that the premise of the investment is a big glut of ethane. The petrochemical industry isn’t building capacity fast enough to soak it all up. The Enterprise project is timed for 2016, a little in advance of the flood of new ethane capacity. It could be that Enterprise needs to export ethane or else prices will get so depressed that the gas industry will produce less ethane.
Update: An industry source contacted me about this post. He offered up a theory that might make both Liveris and Enterprise right on this. What if the unit starts up in 2016, runs until 2020 or so, when the chemical industry really starts to gobble up all the ethane…and then Enterprise starts using it to export ethylene? There wouldn’t be much of an effort to convert from one product to the other. Very plausible, in my opinion.