The market price for ethane is “collapsing.” At least, that’s how the Wall Street Journal characterized the compound’s pricing trend last week.
As natural gas prices have fallen, drillers have focused on extracting “wet” gas, which contains materials they can sell to bolster profits, like ethane, propane and butane. But as more and more companies have turned to wet gas, the value of those commodities has dropped, too.
Forbes comes to a similar conclusion today, writing, “the problem with selling ethane into the natural gas markets is that, with current low natural gas prices, it will only fetch $0.10 to $0.16 per gallon, a fraction of the current price.”
If ethane is selling at a record low price, why does Shell need the $2.10-a-barrel tax break on ethane purchases that Governor Corbett signed into law this weekend? I posed the question to the Corbett Administration. Here’s an emailed response from Department of Community and Economic Development spokesman Steve Kratz:
A company that is evaluating making a multibillion investment is looking for some assurances that there will be a sufficient supply of feedstock needed to operate the plant at full capacity, as well as customers to purchase the ethane derivatives that are produced at the plant.
The flexibility of selling or reassigning the tax credit to upstream producers of natural gas containing ethane and downstream manufacturers that use the ethane derivatives will achieve the objective of keeping the entire petrochemical supply chain in Pennsylvania.
This will incentivize keeping the natural gas containing ethane in Pennsylvania as opposed to producers entering long-term contracts to have it pipelined to the Gulf Coast or Canada. This will also encourage new industries to develop in Pennsylvania that use the ethane derivatives in the manufacturing process.