INSIGHT: New gas pipeline to provide support for ethane prices for US chems

HOUSTON (ICIS)–A new gas pipeline set to be built by Energy Transfer should provide support for natural gas and ethane prices in the Permian producing basin, lowering the likelihood that US chemical producers see another period of ultra-low costs for the main feedstock used to make ethylene.

Energy Transfer’s new Hugh Brinson pipeline, previously known as Warrior, will ship natural gas from the Waha Hub in West Texas, to Maypearl, Texas, which is south of Dallas. The first phase of the project will ship 1.5 billion cubic feet/day of natural gas. Operations should start by the end of 2026.

Depending on demand, Energy Transfer could concurrently start construction on a second phase that will increase the pipeline’s capacity to 2.2 billion cubic feet/day.

Energy Transfer’s pipeline is the second major one announced in the past six months. Earlier, a new joint venture announced Blackcomb, a pipeline that can ship up 2.5 billion cubic feet/day of natural gas from the Permian basin to the Agua Dulce area in south Texas.

Blackcomb will be developed by joint venture made up of Targa and WPC, itself a joint venture made up of WhiteWater, MPLX and Enbridge.

NEW PIPELINES TO SUPPORT ETHANE BY REDUCING LIKELIHOOD OF NEGATIVE WAHA PRICES
The two new pipelines should provide West Texas with sufficient capacity to take away natural gas from the Waha Hub and prevent regional prices from falling below zero.

The Waha Hub is the main pricing point for the natural gas produced by the oil wells in the Permian basin. Prices at the hub spent much of 2024 below zero because existing pipeline capacity was insufficient to take away excess supplies, which were growing because of rising oil production and gas-to-oil ratios across the basin.

When gas prices at Waha fall below zero, it creates a powerful incentive for processing plants to recover as much ethane as possible from the gas stream. Any ethane that remains in the gas stream is sold for its fuel value. When gas prices are negative, producers are unable to capture any value for the ethane left behind.

By maximizing ethane recovery, processing plants also free up existing pipeline space, allowing more natural gas to be taken out of West Texas.

The surge in ethane recovery increased the amount of the feedstock available to the market. At one point in 2024, ethane prices fell below 12 cents/gal, a low not seen since the COVID pandemic.

Since that low, the start up of the Matterhorn Express pipeline has increased takeaway capacity in the Permian, which caused Waha gas prices to rise above zero. Colder temperatures also supported prices for natural gas by increasing demand.

Ethane prices are now trading above 20 cents/gal.

LNG, ETHANE TERMINALS ALSO INFLUENCE COST FOR CHEM FEEDS
Pricing at the Waha Hub is one of the many factors that can influence the cost of ethane for chemical producers.

Maintenance on one or more of the pipelines that takes away gas from the Permian basin can also depress Waha prices and, potentially, those for ethane.

The proliferation of liquefied natural gas (LNG) terminals on the Gulf Coast is playing an increasing role in natural gas and ethane prices.

These terminals are vulnerable to disruptions caused by hurricanes and tropical storms that pass through the Gulf of Mexico. These storms can disrupt LNG operations and temporarily shut down a large source of gas demand in the US.

If the outage lasts long enough, it can cause a meaningful increase in US supplies of natural gas. That can lower prices for gas as well as the recovery cost for ethane.

Midstream companies are increasing their capacity to export ethane overseas, which should support prices for the feedstock.

Enterprise is adding 120,000 bbl/day of capacity via the first phase of the Neches River Terminal project, scheduled to come online in mid-2025. A second phase, due online in the first half of 2026, will add up to another 180,000 bbl/day of ethane export capacity.

Enterprise and Navigator are adding ethane export capabilities as part of the expansion projects at their existing ethylene terminal in Morgan’s Point.

Energy Transfer is also adding 250,000 barrels/day of flexible export capacity, which is scheduled to start up during the second half of next year.

Similarly, new crackers will increase demand for ethane.

The only confirmed new US cracker is a joint-venture cracker that Chevron Phillips Chemical and QatarEnergy should start up in late 2026 in Texas.

Shintech could build a cracker in Louisiana, but the company has yet to announce a final investment decision (FID).

Insight article by Al Greenwood

Thumbnail shows natural gas. Image by Hollandse Hoogte/Shutterstock