Four months ago, East Daley was bearish ethane price. In our early June ’24 Ethane Supply & Demand Report, we predicted robust ethane supply coming out of the Permian would put downward pressure on the forward curve through October ’25, given there is no meaningful new demand coming online until mid-‘25. We were right, though the market view is different now after the start of the Matterhorn gas pipeline.
Over the past four months, the Mont Belvieu forward curve has declined by an average of 7% for contracts from November ’24 to October ’25 (refer to the graph). The ethane supply glut of course wasn’t driven by high ethane prices, but rather low (often negative) Permian Waha gas prices, which incentivized ethane recovery to the max. A low ethane price is better than a negative price – the lesser of two evils.
Fast-forward to today, and the dynamic has shifted. The 2.5 Bcf/d Matterhorn Express Pipeline is operational and ramping up throughput. There is now room to reject ethane into the gas stream, and operators long ethane are incentivized to send more on the new gas egress pointed toward Houston and Gulf Coast markets.
In fact, data available in East Daley’s Energy Data Studio suggests gas plant operators began increasing ethane rejection in August ‘24. The bar chart shows M-o-M ethane growth from Energy Information Administration (EIA) data. The green bars show M-o-M ethane growth based on plant data in Texas and New Mexico. The state data leads the EIA-reported data by a month, with a strong positive correlation.
With more than 25% of plant data for August ’24, it appears likely we will see a decline in ethane supply that month, a necessary adjustment to ethane stocks well in excess of the norm dating back to 2019. The next update of plant data in Energy Data Studio is scheduled for October 28. See East Daley’s Ethane Supply & Demand Report for a deeper dive on supply and demand fundamentals. – Robert Wilson.
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