EIA’s August Short-Term Energy Outlook (STEO) calls for continuing growth in ethane production to satisfy growing demand, including demand from three new U.S. petrochemical plants that started up in the first half of 2020 and use ethane as feedstock. EIA forecasts ethane production will exceed 2 million b/d by the last quarter of 2020—nearly 9% higher than the 1.92 million b/d reported for the first quarter of 2020. Ethane production will continue to grow through 2021, reaching nearly 2.27 million b/d by the last quarter of 2021—18% higher than in the first quarter of 2020.
In contrast, EIA forecasts U.S. crude oil and marketed natural gas production to decline by close to 10% from the first quarter of 2020 to the last quarter of 2021. EIA expects that crude oil production will remain lower than the average 12.75 million b/d achieved in the first quarter of 2020 throughout the forecast period, recovering to a peak of 11.40 million b/d by the last quarter of 2021. EIA forecasts that natural gas production will also remain lower than the 98.3 billion cubic feet per day (Bcf/d) production level reached in the first quarter of 2020, and final quarter 2021 production is forecast at 89.3 Bcf/d.
Ethane is separated from natural gas at natural gas processing plants along with other natural gas plant liquids (NGPL) (propane, normal butane, isobutane, and natural gasoline). However, not all ethane is recovered. Ethane can be left in the natural gas stream, a process known as ethane rejection, to be sold along with natural gas instead of being separated at natural gas processing plants. The decision to recover ethane at natural gas processing plants is based primarily on the price of ethane relative to natural gas on a heating-value equivalent basis.
After the prices of NGPLs collapsed with crude oil in March 2020, prices have started recovering, especially ethane, which is one of the few petroleum products that had a higher average price in July than in January. Strong domestic and international petrochemical demand for U.S. ethane has resulted in ethane prices remaining higher than natural gas prices on a heating content equivalent basis since the second half of April. This price signal, a persistent $1.00 premium to natural gas, has given natural gas processing plant operators an incentive to recover more ethane from the raw natural gas stream and ship that ethane to the Gulf Coast for consumption or export.
