Ethane Demand Could Bring Strength To Henry Hub

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Summary

Ethane supply has continued to grow, even though demand has remained fairly unchanged.

The amount of ethane being rejected into the gas stream has continued to grow on both a relative and absolute scale.

Nearly 2Bcfe/d of the gas supply stream is in the form of rejected ethane, and demand projects coming online could absorb a good portion of that.

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Even with weak commodity prices, ethane production has continued to grow, though at a slow pace. This becomes a problem when you think about the fact that current ethane demand has remained relatively unchanged in the last few years. The result of an over-supply of ethane is that producers must reject excess ethane into the natural gas market, resulting in a volume of gas that could quickly disappear given new ethane demand and an increase in ethane prices. With drilling activity continues to slow each month, gas production has also been decreasing, and if all of the proposed ethane demand projects come online, then the available natural gas supply could take an even bigger hit.

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The above slide shows the increase in ethane production, and also the increase in the amount of ethane being rejected, both on an absolute and relative scale. All of that rejected ethane is going into the natural gas stream, continuing to add to supply. With weak oil prices, associated gas production has slowed significantly, but the effect is countered somewhat (certainly not in full) by the increase in ethane being rejected.

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The above graphic shows the ethane demand that is scheduled to come online in the next few years. It shows that by the second half 2017, assuming all projects come online as proposed, all of the ethane currently being rejected could instead be recovered. This would mean that you would lose all of that ethane from the gas stream, which currently comes to just under 2 Bcfe/d, as shown below. The situation may only get worse in the second half 2018 as petchem demand is projected to jump higher pushing total ethane demand above projected additional recoverable ethane volumes.

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While it is not likely that all of this demand will come online on time and at capacity, if even half of it did, then you could see just under 1 Bcfe/d of gas that effectively disappears from the natural gas market during 2017 and 2018.

To see more on BTU Analytics' production views on natural gas, natural gas liquids, and crude oil, check out our Upstream Outlook, or for more analysis on natural gas markets and natural gas prices check out our Northeast Gas Quarterly.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.