Oct. 25–Pipeline bottlenecks in West Texas have attracted much attention. A lack of capacity to move oil to market has forced producers to scale back operations, with some planning total shutdowns in the final weeks of the year.
Less notice has been paid to another sort of bottleneck creating headaches for the companies making use of the abundance of natural gas produced alongside that oil. A lack of capacity to process natural gas liquids — namely ethane — has created a “major pinch point” for petrochemicals producers, driving up prices amid rising demand, according to a recent analysis by research firm IHS Markit.
The problem centers on a lack of capacity to separate natural gas liquids — ethane, propane, butane and others — once they’ve been segregated from dry natural gas used for heating and power generation. Those liquids are used as feedstock in the production of plastics and other petrochemicals needed to manufacture consumer goods, building materials and other products.
Already, the firm said, the bottlenecks have caused a spike in the price of ethane as producers demand more of it to feed sprawling new plants, to some degree undercutting the promise of low-cost feedstock that has fueled a resurgence in petrochemicals manufacturing along the U.S. Gulf Coast. The global petrochemicals industry has increasingly turned its focus to the export-friendly shores of Texas and Louisiana, spending billions of dollars to expand operations to take advantage of cheap natural gas from West Texas and elsewhere.
The constraints correspond with a broader lag in investments in the transportation and processing capacity needed to support record oil and gas production after a two-year bust. IHS Markit noted that efficiency gains have enabled producers to bring wells online in a matter of months, while building new pipelines and natural gas processing plants takes years.
The firm’s analysis said that domestic ethane demand has outpaced supply since the end of last year. Since then, Dow Chemical, Chevron Phillips Chemical and ExxonMobil Chemical have each brought on towering crackers to turn millions of tons of ethane into ethylene, a base chemical for a range of plastics.
The gap in supply and demand is only expected to grow as other producers prepare to bring on several new crackers of their own in the next couple of years. That means more volatility for ethane prices until new processing facilities come online sometime in 2020 — a reminder that a production boom is only as robust as the pipes and plants that feed it.
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