The US shale gas revolution has created significant change in world natural gas markets in recent years. What is less well-known is that it is also transforming the petrochemical market. US shale gas contains significant quantities of ethane which is an important feedstock in the petrochemical industry. All of the ethane cannot be monetised in the short and medium term in the US. Indeed, several new gas cracker projects in the US have been brought on-stream recently in order to capture the benefit of affordable and increased quantities of domestic ethane feedstock.
Nevertheless, ethane is forecast to remain in surplus in the US domestic market and the extra available volume has been promoted for export. This new supply provides opportunities for non-US petrochemical companies to supplement their domestic ethane feedstock or substitute for conventional oil-based naphtha feedstocks in the production of ethylene and other derivative products. So far, Brazil, Europe and India are currently sourcing US ethane.
Ethane has never been traded in very large quantities. Ethane or ethylene carriers have typically been capable of transporting up to 20,000 m3 of liquid cargo. It is only in the last few years that larger ships (up to 37,000 m³) were constructed to specifically carry ethane from the US to Brazil and Europe. Much greater capacity is needed to yield attractive transportation costs from the US Gulf or East coast to Asia. In late 2016, the Indian based conglomerate Reliance industries took the initiative for a new generation of ethane ships which reach 87,000 m3 capacity. They are referred to by the industry as “Very Large Ethane Carriers” (“VLECs” ), not to be confused with “VLGCs” (Very Large Gas Carriers, typically ships which carry large quantities of LPG).
Large, non-LNG gas ships, accommodating ethane and other derivatives with lower boiling points (circa -89°C) had never been designed before. While its boiling point lies between those typical of the LPG and LNG shipping industries, liquid ethane also has a higher density. The appropriate ship architecture is thus a blend of VLGC and LNGC (LNG carrier) design.
Since late 2016, all the VLECs in service had been trading between the US and India. As of Sept 30th 2018, 60 cargoes had been lifted so far.
With the oil price returning to $70+, available and affordable US ethane has attracted the interest of Asian petrochemical industry players, especially in China, who are seriously considering US feedstock sources. The NDRC (China’s National Development and Reform Commission) has been promoting ethane to ethylene pilot projects and several Chinese companies are currently applying for approvals. SP Chemicals is currently building a new ethane/LPG cracker, and Zhejiang Satellite is building a large ethane only cracker in East China. Several Chinese private companies have also signed agreements to access US ethane for new projects under review by the NDRC.
In order to be more competitive, new generations of VLECs are currently under consideration. These new generation ethane carriers tend to be larger (~100,000 m3) and even more flexible in terms of gas carrying capability (LPG, Ethane, Ethylene and LNG). This market is quite interesting and unique as it attracts stakeholders from the NGL and LNG shipping sectors. The LNG industry brings significant synergy on the shipping side through the option for larger ships which significantly reduces the total supply chain cost. Hence, it lowers the break-even point for ethane feedstock competitiveness and can potentially unlock new projects.
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