Midstream & Natural Gas "Deep Dive: Ethane Exports" Gupta

Research evidence excerpt

Midstream & Natural Gas "Deep Dive: Ethane Exports" Gupta

ommodity chemicals +1-212-713 8018

businesses at both XOM and LYB, as both companies disclose segment earnings for their

Ivan ScottoU.S. and international operations. Our analysis indicates that North American earnings

Associate Analyst

profitability has been materially higher than that of non-U.S. regions for both

ivan.scotto@ubs.com

companies. Over the past four years, LYB’s Olefins & Polyolefins (O&P) segment in North +1-212-713 3137

America has generated average EBITDA margins of 18%, compared with just 0.3% for

Gaurav Sharmaits Europe and Asia operations. Similarly, over the same period, XOM’s Chemical

Products segment has generated average income of $229/ton in the U.S., versus $52/

gaurav-l.sharma@ubs.com

ton for its non-U.S. operations. While a number of factors influence profitability, we +1-212-713 4312

believe the primary driver of this disparity is the feedstock advantage enjoyed by North

American crackers, which predominantly utilize ethane, compared with international

crackers that rely largely on naphtha-based feedstocks.

One avenue through which international petrochemical assets could improve their

competitive position is by increasing the use of imported U.S. ethane as a feedstock. This

is a key reason why we believe higher ethane exports represent a long-term structural

growth trend rather than a transitory phenomenon. As international producers seek to

lower feedstock costs and enhance competitiveness against North American ethane-

based crackers, demand for U.S. ethane is likely to continue expanding over time.

Stock Thoughts

EPD is one of the largest exporters of ethane in the country. EPD was able to

export 240 MBPD of ethane pre-expansions, and that number has now jumped to