EIA expects U.S. ethane production to grow by 9% in the second half of 2022
Ethane production has been increasing in the United States for the past five years, and it reached a monthly record of 2.5 million barrels per day (b/d) in March. More than 2.4 million b/d of ethane has been produced in the United States every month since then. In our Short-Term Energy Outlook (STEO), we forecast ethane production in the second half of 2022 to grow by 9% compared with the first half of 2022, averaging over 2.6 million b/d. We expect that production in 2022 will exceed production in 2021 by 16%, or 340,000 b/d.
Our STEO forecasts annual ethane production to increase again in the United States during 2023 by 7% to nearly 2.7 million b/d to support continued growth in U.S. consumption and exports. Ethane is consumed almost exclusively as a feedstock in petrochemical plants known as steam crackers to produce ethylene, a precursor chemical for manufacturing many plastics and resins. Three new petrochemical crackers have come online to support growth in domestic ethylene production: two in Texas and one in Pennsylvania.
Since 2017, U.S. ethane prices have generally traded at a premium relative to natural gas prices, spurring natural gas plant operators to recover more ethane from raw natural gas streams. When ethane prices are relatively high, natural gas operators recover more ethane to sell in the liquid fuels market (known in the industry as ethane recovery). When ethane prices are relatively low, operators leave more ethane in the processed natural gas stream (known in the industry as ethane rejection), and this ethane is sold at the natural gas heating value. In 2021, ethane prices averaged 80 cents per million British thermal units (MMBtu)—26% higher than dry natural gas prices—driving higher rates of ethane recovery. During the first half of 2022, the ethane premium remained steady at $1.36/MMBtu, which was 25% above the Henry Hub natural gas wholesale price, despite higher average natural gas prices.
Demand for ethane overseas as a petrochemical feedstock has been growing since 2015. We forecast U.S. exports of ethane to continue to grow from about 350,000 b/d in the second quarter of 2022 to about 440,000 b/d in the fourth quarter. We expect ethane exports to rise to 460,000 b/d in 2023.
In our long-term Annual Energy Outlook 2022 (AEO2022), we expect the rapid growth in U.S. ethane production to plateau around 2.7 million b/d in the second half of this decade. We forecast a renewed period of generally steady growth after 2030, when we expect greater demand for natural gas to drive higher natural gas production. More natural gas production results in more natural gas plant liquids (NGPL), including ethane. We expect the majority of U.S. ethane production to be increasingly concentrated in two regions. In the Southwest, we expect ethane production to grow from 800,000 b/d in 2021 to 1.1 million b/d in 2050. In the eastern United States, we expect ethane production to triple from 300,000 b/d in 2021 to close to 1.0 million b/d by 2050. By 2050, the Southwest will account for 36% of all U.S. ethane production, and the eastern United States will account for 32%. We project total U.S. ethane production to peak at 3.0 million b/d in 2050, the end of the AEO2022 projection period.
Principal contributors: Warren Wilczewski, Josh Eiermann