Dow Chemical Co. (DOW) Chief Executive Officer Andrew Liveris said there’s a risk that tighter natural gas markets will hurt the economic assumptions behind Enterprise Products Partners LP (EPD)’s plan to export U.S. ethane.
Global oil prices will drop and U.S. gas prices will rise during the next five to 10 years, reducing the advantage of producing ethylene and plastics from U.S. ethane, a natural gas liquid, Liveris said in a phone interview today. After adding costs for export and import facilities, chemical makers in places such as Europe may have little incentive to buy U.S. 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 U.S. 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 yesterday said it plans to eliminate much of the estimated 300,000 barrels a day 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.”
Rick Rainey, an Enterprise spokesman, declined to immediately comment when reached by Bloomberg.
If Enterprise can fill its export facility, U.S. 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 today.
Dow is investing $4 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 Co. and Exxon Mobil Corp. also are expanding ethylene production in the U.S. 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 barrels a day, 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 Inc. (OKE), which has been rejecting about 90,000 barrels of ethane daily at its processing units, stands to benefit from the start of ethane exports, Christopher Sighinolfi, a New York-based analyst at Jefferies LLC, said yesterday in a report.
Ineos Group Holdings Ltd. previously announced agreements to import U.S. ethane for European ethylene production.
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