A new flexi-gas cracker operated by Singapore-headquartered SP Chemicals in Taixing, China, is in the process of testing its furnaces and could attain preliminary functionality by August, according to market watchers tracking the progress of the project.
These observations came as the JS Ineos Inspiration, a 265,000-bbl capacity ethane tanker chartered by privately owned British chemical multinational Ineos, on June 27 departed from the Morgan's Point export docks on the Houston Ship Channel signaling a passage through the Panama Canal, suggesting an ultimate destination on the Pacific Ocean side of the waterway.
The Mont Belvieu purity ethane price, meanwhile, today hit an intraday low not seen since March 2016. The prospect of potential ethane exports to China boosting the spot price either in the short or medium term is likely a non-starter amid a glutted Gulf Coast market, En*Vantage Inc. principal Peter Fasullo told OPIS this morning.
On the shipping front, Market Intelligence Network (MINT), a service offered by OPIS parent IHS Markit, at presstime showed the JS Ineos Inspiration at anchor outside the northern mouth of the Panama Canal. If the tanker does head to China after this passage, its voyage would consummate the first-ever shipment of U.S. ethane to that nation.
Accounting for traffic congestion in the Canal and normal sailing times, the putative arrival time of the JS Ineos Inspiration in China would dovetail quite well with the putative August startup of the Taixing cracker, one expert said today.
"The fact that it [the JS Ineos Inspiration] loaded at Morgan's Point means it [the cargo] is ethane, and [passage through] the Panama Canal is likely to mean it is going to China," he noted. India and Canada (via pipeline) currently are the biggest importers of U.S. ethane, while China's total is zero. Other waterborne exports head mainly to Europe.
The fact that the JS Ineos Inspiration and not a larger Ineos-backed tanker model is hauling what could be the first Chinese payload suggests that SP Chemicals needs only finite volumes at this time, the expert continued. On this theory, the JS Ineos Inspiration payload is likely a commissioning cargo intended for storage, to enable subsequent test runs of the cracker furnace before it comes fully on stream.
Ineos in November 2017 unveiled a multiyear assignment to supply U.S. shale-sourced ethane to SP Chemicals' Taixing cracker. The newly built, 850,000-bbl capacity very large ethane carrier (VLEC) JS Ineos Marlin, which entered commercial service in May, is custom-built to service this project.
The JS Ineos Inspiration is part of a series of smaller custom-designed sisterships, which Ineos pressed into service in 2016 to carry the first U.S. ethane exports to Europe.
As OPIS reported in May, the JS Ineos Marlin was tipped to haul the first-ever U.S. ethane cargo from Morgan's Point to China. But this voyage did not happen, amid reports that the cracker might not get into gear before the fourth quarter. Instead, Ineos ended up taking the JS Ineos Marlin to Scapa Flow in Scotland, from where it organized multiple lightering operations to ferry batches of the cargo into its cracker in Rafnes, Norway. This suggested the JS Ineos Marlin may have been too big for the Rafnes docks.
The JS Ineos Marlin set sail for Houston after its maiden cargo was thus emptied. But the ship changed course midway and headed for the East Coast. MINT shows the JS Ineos Marlin anchored at the mouth of Delaware Bay since June 26, apparently waiting to proceed upriver into Marcus Hook, Pa.
Marcus Hook is the only other currently operational ethane export waterfront in the U.S., and it also exports propane and butane. Why the JS Ineos Marlin ended up diverting from Houston to Marcus Hook, and whether it intends to load ethane or propane if it docks up there, remained unclear at presstime.
Ineos did not respond to a request for comment.
Meanwhile, last week's shipping developments along the Gulf Coast were followed at the weekend by U.S. President Donald Trump's announcement of a "truce" in the ongoing trade dispute between Washington and Beijing. If the truce holds, it may resolve a macroeconomic risk that currently hangs over ethane exports to China.
U.S. ethane currently is not subjected to Chinese tariffs, but this is only because there are no exports. Should the trade dispute drag on, and should ethane come into the tariff crosshairs, SP Chemicals may find it financially less burdensome to feed non-U.S. sourced propane instead of U.S. ethane into the Taixing cracker, some experts have previously warned.
An estimate from Range Resources in April projected that flows to the Taixing cracker would add around 15,000 b/d to Morgan's Point exports, which would be roughly 10% of the current average flowing out of the facility.
But even if these flows were fully achieved, they are unlikely to benefit the Mont Belvieu ethane spot price either in the short or the medium term, Fasullo said.
Mont Belvieu purity ethane at presstime today had carved a day's range of 14.75-16.25cts/gal, suggesting an OPIS-assessed end-of-day average and intraday low that both would be the lowest since March 3, 2016 as per OPIS TimeSeries data.
Fasullo put ethane's current price woes down to multiple reasons.
The restart of Mariner East 1 means that some 30,000 b/d of ethane exports are once again flowing out of PADD1 (Marcus Hook), thus reverting PADD3 (Morgan's Point) exports down to their more normal 150,000 b/d range.
Secondly, unscheduled Gulf Coast ethylene plant outages have affected existing demand. For instance, Chevron Phillips Chemicals' Sweeny 33 and Sweeny 24 crackers are understood to be surmounting power and steam issues, which has reportedly knocked about 80,000 b/d of ethane demand off the order boards for the time being.
Two other crackers, ExxonMobil Beaumont and Total/BASF Port Arthur, with combined ethane demand of some 90,000 b/d, have taken longer to return to service after extended scheduled turnarounds, though the Beaumont facility did reportedly return to service last week and the Port Arthur one is reportedly in startup mode.
Meanwhile, new crackers with estimated incremental ethane demand of some 300,000 b/d are expected to start up through the remainder of 2019 only in a circumspect manner, in keeping with weak ethylene economics.
On the supply side, weak Permian natural gas prices earlier this spring had reportedly triggered increased ethane extraction in the field, at a time when two new fractionators with estimated incremental ethane output of some 115,000 b/d also started up in Mont Belvieu in the first half of 2019.
Based on all these factors, En*Vantage has identified a critical issue that is expected to depress Gulf Coast ethane prices through the summer: surging local stockpiles.
Relying on market intelligence, Fasullo on June 21 projected that stocks of PADD3 ethane stored in bulk terminals (salt caverns) would rise to 44.6 million bbl at the end of June, from 37.7 million bbl in March.
The Energy Information Administration (EIA), which reports ethane stocks two months in arrears, on June 28 suggested that Fasullo's projection is on track.
EIA statistics for the end of April showed PADD3 ethane stored in bulk terminals at 39.3 million bbl, up 1.6 million bbl on the month and the highest level since February 2018.
Quoting anecdotal market evidence, Fasullo said PADD3 ethane storage is especially tight right now, though he added that this malaise is bedeviling all natural gas liquids in the region.
"If that is the case, then we can only extrapolate that this month ethane stocks could be reaching a saturation point," he noted.
Fasullo expects the ethane spot price to recover in the coming weeks, on the back of improved demand once the sidelined crackers return. However, Fasullo, like many other experts, has backed off from projections that new cracker demand would help Mont Belvieu spot ethane achieve 50cts/gal or higher any time soon. His projection is for a price in the 25cts/gal range through the year-end, which would be lower than the 30cts/gal at which the year began.
"The impending boost in ethane demand should provide upward support for ethane prices. But, ethane extraction capability will continue to increase and there is simply no room (storage capacity) to handle unscheduled outages and delays in new crackers," En*Vantage noted in a commentary last week.
"Whether ethane can pick itself off the floor depends on the ability of the petrochemical industry to keep its plants running and to successfully bring online new crackers that are scheduled to start-up this year."
--Rajesh Joshi, rjoshi@opisnet.com
--Dermot McGowan, dmcgowan@opisnet.com
Copyright, Oil Price Information Service
