America’s Next Top Export Won’t Be Oil

While America debates oil exports, this liquid fuel could soon take center stage and become a top export.

Matthew DiLallo
Matthew DiLallo
Apr 2, 2014 at 2:37PM
Energy, Materials, and Utilities

Photo credit: Flickr/rabiem22 

I don't think most Americans realize just how much our energy boom has changed our future. It wasn't that long ago that we thought wewere running out of natural gas. It was so concerning that energy companies spent billions to build a number of natural gas import facilities. Now they're spending billions to convert those very same facilities into natural gas export terminals. In fact, the race to build export facilities is moving so fast that some worry we'll lose the competitive advantage of low prices that we've enjoyed the past few years.

That same fear exists in the oil market, where there is a push to export oil. Just a few years ago we worried about peak oil, but now we've flooded our market with so much cheap oil that it sells at a significant discount to global oil prices. While I personally think ending our oil export ban is a bad idea, the idea is certainly not without merit. However, oil isn't the commodity I think we need to focus on exporting. That's because our supply of the natural gas byproduct ethane is growing to the point where it could become an even more important export for our country.

The coming NGL flood
At its recent analyst day, midstream giant Enterprise Products Partners (NYSE:EPD) spent a good deal of time describing the market fundamentals within America's energy industry. From its presentation, there's a compelling case to be made that we're still in the very early days of the energy boom. In addition to an incredible amount of natural gas production potential, Enterprise noted that there's an enormous amount of natural gas liquids, or NGL, supply potential that could reach the market by the end of the decade, as the following slide shows:

Source: Enterprise Products Partners Investor Presentation (link opens a PDF).

That slide shows the amazing growth in U.S. NGL production since 2008, as well as the potential growth in production by 2020. It's pretty amazing to realize that we've seen the production of ethane and propane both double over the past eight years, with another double from here likely.

America is now the propane export king
The explosion in NGL production has opened up the opportunity for companies including Enterprise Products Partners to export our growing supply of propane. Last year, the United States shipped out 112 million barrels of propane to become the world's top exporter of the material. Enterprise led the way in exporting 87 million barrels in 2013.

America's propane exports will only grow in the future. Not only is Enterprise continuing to expand its export capacity, but it is being joined by peers such as Phillips 66 (NYSE:PSX), which announced earlier this year that it would build the Freeport LPG Export Terminal. Meanwhile, a joint venture between Williams (NYSE:WMB) and Boardwalk Pipeline Partners (NYSE:BWP) proposes to build a LPG terminal as well.

Ethane could be next
The next hot export market on the docket is likely to be ethane shipments to European petrochemical plants. As the following slide shows, there is a big potential market for U.S ethane in Europe as a replacement for oil-based naptha.

Source: Enterprise Products Partners Investor Presentation.

We're already starting to see ethane export deals with European petrochemical manufacturers trickle in. Just a few months ago, CONSOL Energy (NYSE:CNX) signed an agreement to ship ethane produced from the Marcellus shale to a European petrochemical manufacturer. CONSOL is not the first Marcellus-focused producer to sign such an agreement, nor will it be the last.

Meanwhile, Enterprise Products Partners is looking at shipping ethane out of the Gulf Coast. The company put its ATEX Express ethane pipeline into service earlier this year. That pipeline will ship ethane produced in the Marcellus and Utica shales to the Gulf Coast petrochemical marketplace. Given the massive supply of ethane heading to the Gulf Coast, Enterprise will be in the prime position to provide export solutions to keep the market from becoming oversaturated.

Investor takeaway
With U.S. ethane production expected to double again by the end of the decade, it's likely we'll see Enterprise and other midstream companies looking for additional ways to ship our excess production overseas. I think we'll likely see a number of announcements of new ethane export projects, just as we've seen a rush of propane and natural gas export projects over the past two years. That could be a real boom for Enterprise, which is one of the top NGL logistic companies in America.