U.S. ethane consumption fell significantly in February because of severe cold weather
Annual U.S. ethane consumption has increased every year since 2008 because demand for ethane as a petrochemical feedstock has been growing, and we expect this trend to continue through 2022, according to our mid-February winter storm. Although most of the ethylene crackers used to process ethane came back online by mid-March, some remained offline through the end of the month and into the first week of April because the cold weather had severely damaged the facilities.
Hydrocarbon gas liquids (HGLs), which include ethane, have been primarily driving U.S. petroleum and other liquids demand growth since 2007, and exports of ethane and other HGLs have also increased since 2007. Ethane is mainly used as a petrochemical feedstock to produce ethylene, which is used to make plastics and resins. When ethylene is produced using an ethylene cracker, ethane is fed into a steam cracker that heats the ethane to break down (or crack) the molecule into ethylene, along with some co-products that are also produced from the cracking process.
The winter storm brought freezing temperatures to the Gulf Coast, where about 90% of ethane is consumed in the United States, and many of the crackers were damaged. When natural gas plant production came back online, and ethane production resumed, many of the crackers were still offline. Similar drops in supply typically occur when a hurricane hits the U.S. Gulf Coast. When Hurricane Laura made landfall at the end of August 2020, it caused ethane consumption to drop 240,000 b/d in September 2020 (or 7%) as a result of outages at several crackers in Texas and Louisiana. The mid-February winter storm reduced U.S. ethane consumption nearly three times more than Hurricane Laura, which was previously the largest one-month drop in ethane consumption on record.
Most of the crackers in the Gulf Coast came back online after the February 2021 storm at various times throughout March, but some were still offline until early April. In our April STEO, in advance of available March data, we are estimating that ethane consumption in March returned to average levels but remained 415,000 b/d below January’s level of 1.87 million b/d. We expect three newly constructed ethylene crackers to come online by the end of the forecast period, which is reflected in our estimate that consumption will grow to more than 2.0 million b/d at the end of 2021 and 2.1 million b/d by the end of 2022. Two of the crackers, one a joint venture with Total, Borealis, and NOVA Chemicals and the other a joint venture with ExxonMobil and SABIC, will be in Texas, and the third, owned by Shell, will be located in Pennsylvania.
Demand for ethylene has been growing due to its relatively low cost and to heightened demand for its end uses. Ethylene’s end uses vary from plastic bottles and lubricants to automobile interiors and antifreeze. In the United States, the supply chain is integrated, so a short-term shortage in ethylene and its derivative products in February, due to the winter storm, led to shutdowns in auto manufacturing in North America because parts made from ethylene-derived materials were in short supply. Ethylene-derived materials are also used to manufacture some personal protective equipment, which saw a spike in demand because of the COVID-19 pandemic, and is facing similar supply chain disruptions.
Ethylene can be produced in petrochemical crackers from a variety of feedstocks, including all natural gas liquids and naphtha. Depending on the feedstock, the yield of ethylene from a petrochemical cracker can range from as little as 29% when cracking naphtha to more than 80% when cracking ethane. This high ethylene yield, with little co-product, has spurred the petrochemical industry in the United States, and increasingly around the world, to shift feedstock consumption decisively in favor of ethane. We expect ethylene demand to continue growing for use in the petrochemical industry, outpacing demand for other co-products from petrochemical crackers.
Ethane spot prices are associated more with natural gas than crude oil, making it the cheaper feedstock compared to naphtha, while naphtha is associated more with crude oil along with the other heavier products like butanes and natural gasoline. Ethane spot prices have been consistently lower than naphtha spot prices (Figure 2). Spot prices of naphtha haven’t gone above $2.00 per gallon (gal) since 2014 when measured as a monthly average. Ethane, on the other hand, has stayed below $1.00/gal for the past decade. Although naphtha is the more expensive feedstock for petrochemical cracking, it may yield co-product that generates additional value to producers that is not reflected in Figure 2.
In the April STEO, we forecast that U.S. ethane consumption will grow to 2.1 million b/d in 2022 and account for 10% of the U.S. consumption of petroleum and other liquids (Figure 3). We expect consumption of major petroleum products to increase nearly 1.2 million b/d by 2022 from 2010 levels. Nearly all of this growth results from the 1.2 million b/d (or 130%) growth in ethane consumption during that same period. U.S. consumption of other petroleum liquids has been relatively flat in comparison. Jet fuel and distillate have the second- and third-highest expected growth rates, at 17% and 10%, respectively, from 2010 to 2022, offsetting declines in other petroleum products.
Unlike most finished petroleum products, ethane consumption actually grew in 2020, and by 2022, we expect ethane consumption to be about 30% above 2019 levels (Figure 4). The only other major petroleum product that we expect to pass 2019 consumption levels in 2022 is distillate, reaching 83,000 b/d (2%) higher than 2019 levels.
U.S. average regular gasoline and diesel prices increase
The U.S. average regular gasoline retail price increased nearly 2 cents to $2.89 per gallon on May 3, $1.10 higher than the same time last year. The West Coast price increased nearly 5 cents to $3.60 per gallon, the Rocky Mountains price increased nearly 3 cents to $3.02 per gallon, the East Coast price increased nearly 2 cents to $2.78 per gallon, and the Midwest price increased more than 1 cent to $2.81 per gallon. The Gulf Coast price decreased less than 1 cent to $2.58 per gallon.
The U.S. average diesel fuel price increased nearly 2 cents to $3.14 per gallon on May 3, 74 cents higher than a year ago. The Midwest price increased nearly 3 cents to $3.09 per gallon, the Rocky Mountains price increased more than 2 cents to $3.25 per gallon, the East Coast price increased 2 cents to $3.11 per gallon, the West Coast price increased more than 1 cent to $3.66 per gallon, and the Gulf Coast price increased nearly 1 cent to $2.92 per gallon.
Propane/propylene inventories rise
U.S. propane/propylene stocks increased by 0.5 million barrels last week to 41.5 million barrels as of April 30, 2021, 9.9 million barrels (19.3%) less than the five-year (2016-2020) average inventory levels for this same time of year. East Coast and Midwest inventories each increased by 0.3 million barrels. Gulf Coast inventories decreased by 0.1 million barrels, and Rocky Mountain/West Coast inventories decreased slightly, remaining virtually unchanged.
For questions about This Week in Petroleum, contact the Petroleum Markets Team at 202-586-4522.