The U.S. shale boom’s latest reverberations are being felt at a shipyard on the Yangtze River in eastern China.
It’s there that Sinopacific Offshore & Engineering Co. unveiled last month a so-called dragon-class tanker to carry U.S. hydrocarbons to Europe. The 180-meter (591 feet) long vessels will move ethane piped from American shale fields to a Pennsylvania terminal, across the Atlantic to Norway and Scotland, where Ineos Group Holdings SA will process the natural gas liquid into chemicals used to make plastics.
The tankers, the biggest of their kind so far, are the latest link in an energy supply chain bringing abundant hydrocarbons unlocked in recent years from the U.S. to markets as far away as India. The ships wouldn’t have been designed or built if their cargo weren’t so cheap, prompting overseas chemical makers to benefit from low feedstock prices.
“Ethane usually isn’t exported as there weren’t tankers especially built for it,” Anthony Yuen, a New York-based analyst at Citigroup Inc., said by e-mail. “Ethane is a forgotten hydrocarbon. This is phenomenal because every U.S. hydrocarbon molecule will be exported because of low costs.”
There’s more to come as export facilities in the U.S. start up and even bigger ships are completed. Enterprise Products Partners LP, which is planning a 240,000 barrel-a-day ethane terminal on the U.S. Gulf Coast, forecasts the number of very large ethane carriers will increase to 48 by 2017, from just five last year.
Shipyards that may benefit from orders for new vessels include Sinopacific, Hyundai Mipo Dockyard Co. and STX Offshore & Shipbuilding Co., according to Park Moo Hyun, a freight market analyst at Hana Daetoo Securities Co. in Seoul.
India’s Reliance Industries Ltd. last year ordered six very large ethane carriers to transport U.S. supplies. Samsung Heavy Industries Co. is building the ships that cost about $120 million each and are scheduled to be ready in the fourth quarter of 2016, according to Bloomberg Intelligence analyst Jason Miner.
“Shale gas output unlocked export opportunities for chemical products that no one considered before, that is opening up new opportunities in the shipping and shipbuilding industry,” said Hana Daetoo’s Park.
Exports from the U.S. are being driven by an oversupply of ethane and other light hydrocarbons called natural gas liquids, or NGLs, that have been unlocked from shale deposits by new drilling technologies. U.S. natural gas liquids production rose 9.7 percent to 4.1 million barrels a day in May from a year ago, according to the Energy Information Administration. Exports increased 31 percent to 953,000 barrels a day in the same period.
A decline in the oil price may erode the competitiveness of ethane as a feedstock as alternatives such as naphtha and liquefied petroleum gas become cheaper, according to Yuen.
Spot ethane at Mont Belvieu, Texas, dropped about 9 percent from a year ago and traded at 20.5 cents a gallon on Aug. 12, according to prices from Liquidity Partners and DTN Energy compiled by Bloomberg. The feedstock fell to the lowest since 2001 in December.
Shale gas in the U.S. “has changed the world energy map,” Jim Ratcliffe, Ineos chairman, said at the July 14 naming ceremony for the new tankers.
“Today, they are just in the best position than anybody in the world on the energy front,” he said in an interview, referring to U.S. exporters. “Bringing this very competitive raw material over to Europe would give the European assets the same cost base as the Americans and give them a new life.”
— With assistance by Jing Yang, and Kyunghee Park