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Ethane Prices Fell Last Week: How Did That Impact MLPs?

MLPs Closed 2.6% Higher Last Week: What Should Investors Know?

(Continued from Prior Part)

Ethane prices last week

Mont Belvieu ethane prices fell marginally by 0.7% to $0.193 per gallon in the week ended May 20, 2016. Prices rose 2.6% to $0.194 per gallon in the previous week. However, ethane prices have fallen significantly over the years.

Low ethane prices and higher costs for storing and transporting ethane resulted in ethane rejection. This means that producers leave ethane in the natural gas stream. Extracting ethane isn’t always economical when prices are low. The costs of storing and transporting ethane are higher than the related costs for hydrocarbon gas liquids products. Read our series What is ethane rejection and why is it important for energy MLPs? to learn more about ethane rejection.

The above graph shows weekly ethane prices over the past six weeks. Enable Midstream Partners (ENBL), Tallgrass Energy Partners (TEP), and Summit Midstream Partners (SMLP) are a few of the MLPs engaged in natural gas gathering and processing.

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Key developments in the ethane market

Recent developments in the ethane market are expected to have a positive impact on MLPs involved in ethane projects. These MLPs include Sunoco Logistics Partners (SXL), Energy Transfer Partners (ETP), DCP Midstream Partners (DPM), and Enterprise Products Partners (EPD). Energy Transfer Partners forms 0.03% of the Global X SuperDividend US ETF (DIV).

One of the developments is higher ethane use from petrochemical companies. Lower ethane prices resulted in petrochemical companies using ethane more as a feedstock in place of naphtha.

According to Wouter van Kempen, DPM’s CEO (chief executive officer), “There are billions of dollars of investments in petchem facilities that are expected to come online in 2017 and 2018, and those crackers crack only one thing. That is ethane. These expansions, along with [BDH] facilities and exports, are anticipated to need ethane in excess of what is currently being rejected by the industry. And to give you some perspective, over 650,000 barrels per day of ethane are currently being rejected in the lower 48.”

Ethane infrastructure

Ethane-related infrastructure, including plants to convert ethane to ethylene, has been developing in the United States. This development supports the rising demand for petrochemical companies. This is positive for ethane demand. Eventually, it will be positive for prices. Some companies are investing in export terminals for ethane. There’s an attractive export market for ethane in Canada, Asia, and Europe.

In the next part of this series, we’ll see why a 0.1% fall in crude oil production has impacted MLPs.

Continue to Next Part

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