\u3000\u30001. Ethane supply and demand in the United States - reinjection volume shows an increasing trend from 2022 to 2025
The increase of natural gas production promotes the continuous growth of potential supply of ethane: according to EIA, the production of natural gas will show an increasing trend until 2050. The output of NGL increases with the growth of natural gas, which promotes the potential supply of ethane. We predict that the potential supply of ethane will be 76.59 million tons in 2025, an increase of 11.66 million tons compared with 64.93 million tons in 2021, with a compound annual growth rate of 4%.
The domestic demand of the United States is still growing, and the export capacity tends to be saturated: from 2021 to 2025, the domestic ethane demand of the United States is expected to increase by 7.77 million tons from 35.58 million tons to 43.35 million tons, with a compound annual growth rate of 2%.
On the export side, at present, the export capacity of the two major export terminals in the United States has been saturated, resulting in low export demand for ethane, which is mainly driven by satellite chemistry and Canadian novachemicals. From 2021 to 2025, the net export of ethane in the United States is expected to increase by 3.58 million tons from 7.3 million tons to 10.88 million tons, with an annual compound growth rate of 10%.
Relationship between ethane supply and demand: we expect the reinjection volume of ethane to reach a peak of 24.98 million tons in 2024, an increase of 2.94 million tons compared with 2021. Although the reinjection volume of ethane will decrease slightly in 2025, it is still at a high level of more than 20 million tons. To sum up, the supply-demand relationship of ethane may be loose until 2025.
\u3000\u30002. Ethane pricing system
Ethane pricing logic: when the supply and demand of ethane is loose, the price of ethane will decline. When the price is lower than the price of natural gas, some ethane will not be separated, but sold at the price of natural gas, so the price of natural gas supports the price of ethane.
Ethane pricing formula = natural gas price + transportation and fractionation cost
According to Henry hub futures contract price and transportation fractionation cost, the reasonable price of ethane from 2022 to 2025 is 49.81 cents / gallon, 40.51 cents / gallon, 35.66 cents / gallon and 35.27 cents / gallon respectively.
3. Economic analysis of ethane cracking project in 2022
Important assumptions: 1) it is assumed that the HH price of natural gas is subject to the forward contract price; 2) Considering that the reinjection volume of ethane will remain loose, it is expected that the pricing system of ethane will be based on the calorific value of natural gas with pipeline transportation fee; 3) The price of HDPE 22-year futures and the price of HDPE 23-year futures.
Conclusion: the price of ethane will be between 40 ~ 50 cents / gallon in 2022 / 2023. The simulated profits of ethane cracking in 2022 and 2023 were 3151 yuan / ton and 3731 yuan / ton respectively, an increase from 2722 yuan / ton in 2021.
Risk tip: the US natural gas price is affected by the Russian Ukrainian war, and there is a risk of sharp rise; The risk of us natural gas production falling short of expectations; Risk of pipeline explosion in the United States; There is a risk of deviation in subjective measurement.
