Ethane trade is set to increase in the coming years with rising US exports and improving demand for ethylene production in countries such as China.
Demand for Very Large Ethane Carriers (VLECs) will increase in the next three years as ethane trade grows on the US-China route.
The first VLEC cargo on the US-China route was transported by the 84,000 cbm JS Ineos Marlin, which loaded from both the Marcus Hook and Morgan Point terminals in July 2019. The development marked a new era in gas trade, which has the potential to become a major trade in the future.
These countries have traded ethane before on smaller semi-refrigerated vessels but the trade was sporadic, depending on the feedstock used by Chinese steam crackers. However, upcoming ethylene facilities in China have been based on supplies of cheap US ethane and in theory, this trade should support the rise in demand for ethane over the forecast years.
The US became the top ethane exporter in 2015, but all of it was exported to Canada through pipelines. The country has since developed two export terminals – Marcus Hook and Morgan Point – to expand its reach. In 2018, the US exported ethane to Brazil, Canada, India, Mexico, Norway, Sweden and the UK. As a result, US ethane exports increased to 5.6 million tonnes in 2018, up 30% from 2017.
US ethane exports will continue to expand with the commencement of the 17 mtpa production capacity which is under construction or planned, with most of these projects expected to come online by 2022.
Specifically, the Orbit ethane export terminal (5.5 mtpa) is scheduled to be completed in 2020 and already 86% of the terminal’s capacity has been contracted by China’s Zhenjiang Satellite Petrochemicals. Similarly, American Ethane has begun construction on its Beaumont ethane export terminal (10 mtpa) which is due to come online in 2022. To date, 70% of the terminal’s capacity is under contract to three Chinese companies. The completion of the Mariner East -2 pipeline has increased Marcus Hook terminal’s ethane export capacity by 2 mtpa. Energy Transfer Partners also plans a second ethane export terminal on the US Gulf Coast.
Meanwhile, China plans to double its ethylene capacity by 2022 by adding13-14 mtpa of production capacity, creating 15-20 mtpa of ethane demand. There are reportedly 12 crackers that will come onstream with three crackers aggregating around 1.9 mtpa of ethylene capacity scheduled to come online in 2019.
Ethane trade on the US-China route has the potential to create demand for about 30 VLECs. Many shipowners are interested in investing in such vessels. There are currently seven VLECs in operation of which six are co-owned by Reliance Industries and MOL, while one is owned by Evergas.
With the VLEC model proven to be successful, orders for new vessels have increased in 2019. Zhejiang Satellite Petrochemical placed an order for six 97,000 cbm VLECs to transport ethane from the Orbit terminal in the US to China. Five of the vessels are scheduled for delivery in 2020 and one in 2021. In addition, Jaccar Holdings also has one 85,000 cbm VLEC under construction backed by a contract with SP Chemicals in China, and MOL has recently signed an MoU with the ABS Group for technical consultancy on designing and constructing seven VLECs.
Modern VLECs use similar technology as LNG carriers and have the ability to transport ethane or propane. However, we expect that the new generation of carriers will focus only on ethane as designs are pending for Ultra Large Ethane Carriers (ULECs) with capacities in excess of 150,000 cbm. Such vessels cannot be accommodated by any of the existing LPG terminals.
With the number of ethane carrying vessels increasing, this niche segment in the gas shipping sector seems to be ready to break out on the main stage. The long-haul route between the US and China will increase the tonne-mile demand in the sector as well as bring more advanced technology and bigger vessels into the arena.