By JACK KASKEY
Dow Chemical CEO Andrew Liveris said theres a risk that
tighter natural gas markets will hurt the economic
assumptions behind Enterprise Products' plan to export US
Global oil prices will drop and US gas prices will rise
during the next five to 10 years, reducing the advantage of
producing ethylene and plastics from US ethane, a natural gas
liquid, Liveris said in a phone interview. After adding costs
for export and import facilities
, chemical makers in
places such as Europe
may have little incentive
to buy US ethane, he said.
Its 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,
thats a high-risk contract.
Increased production from US 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 said it plans to eliminate much of the
estimated 300,000 bpd 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, US 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.
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 and ExxonMobil also are expanding
ethylene production in the US 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 bpd, 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, which has been rejecting about 90,000 bpd of ethane at
its processing units, stands to benefit from the start of
ethane exports, Christopher Sighinolfi, a New York- based
analyst at Jefferies, said in a report.
Ineos Group previously announced agreements to import US
ethane for Europe
an ethylene production.