Material Insights · Understanding the Material World

Ethylene and Natural gas

Ethane separated from natural gas cracks into ethylene at over 80% yield, against about 30% for naphtha, so gas-rich regions make the cheapest ethylene and set the competitive bar for oil-based crackers.

Ethylene (chemical) and Natural gas (energy): 4 relationships.

How they are linked

1. Ethane from gas

Physical flow · Strong · Natural gas liquids to ethylene

Ethane is separated from natural gas during processing and cracked into ethylene, giving US and Middle East crackers a gas-based feed.

  • more than 80% ethylene yield from ethane cracking
  • 2.1 mb/d forecast US ethane consumption, 2022 and 2023

Ethane cracking yields mostly ethylene rather than the wide slate of co-products that naphtha gives, so the price of ethane from gas processing, not oil, is the main driver of these crackers' costs.

Sources: US Energy Information Administration; US Energy Information Administration

2. Cost edge over naphtha

Substitution · Strong · Ethane crackers undercut naphtha crackers

Cracking ethane has a higher margin than cracking naphtha because it yields far more ethylene and has been priced off gas, not oil.

  • more than 80% against as little as 30% ethylene yield, ethane against naphtha

The edge is largest when oil is high against gas. Asian naphtha crackers, the higher-cost supply, have had negative olefin margins for several years amid oversupply.

Sources: US Energy Information Administration; US Energy Information Administration; S&P Global Commodity Insights

3. Seaborne ethane trade

Physical flow · Rising · US ethane to crackers in Asia and India

Ethane is now shipped by sea in large volumes, so crackers without local gas can buy US ethane.

  • 537 kb/d US ethane exports, March 2023 record
  • 4.15 Mt/y ethylene capacity of four ethane-fed crackers in Asia and Europe due 2025 to 2027
  • 1.6 Mt Reliance planned US ethane imports, FY2017-18

US exports to China rose from 21 kb/d in 2020 to 157 kb/d in 2022. US ethane supply may level off from the mid-2030s, which limits how far this trade can grow.

Sources: US Energy Information Administration; S&P Global Commodity Insights; Business Standard (PTI)

4. Price link: feedstock cost

Cost and price · Medium · Both ways, gas leads by about two months

Ethane prices follow natural gas, but ethylene is priced on a world market often set by naphtha crackers, so the tie to gas is weaker.

  • 0.19 monthly change correlation
  • 0.68 12-month change correlation
  • 0.29 fitted elasticity

The series is European gas, while ethane trades in its own US market, so the monthly link is weak at 0.19. Over a year it reaches 0.68, as gas price cycles flow into feed costs.

Sources: Material Insights (World Bank, FRED, IMF data)

For investors

Key learnings

  1. Ethane from natural gas yields over 80% ethylene against about 30% for naphtha, which gives US and Gulf crackers a structural cost edge.
  2. That edge widens when oil is dear against gas, while Asian naphtha crackers have had negative margins for several years amid oversupply.
  3. Seaborne ethane, a record 537 kb/d from the US in March 2023, lets Asian and Indian crackers buy this advantage, but US supply may plateau from the mid-2030s.

What to track

  • Mont Belvieu ethane price against Brent: A wider gap strengthens ethane crackers' edge (Daily · OPIS, CME)
  • US ethane exports: Growth signals more ethane-fed capacity abroad (Monthly · EIA)
  • Asian ethylene to naphtha spread: Shows the pressure ethane-based supply puts on naphtha crackers (Daily · S&P Global Platts)

For policymakers

Key learnings

  1. Countries with gas liquids hold a lasting edge in ethylene, so feed access is central to petrochemical policy.
  2. India has used imported US ethane since 2017, which swaps naphtha dependence for dependence on US ethane and shipping.
  3. US ethane availability is expected to slow from the mid-2030s, so long-term plans built on imported ethane carry supply risk.

What to track

  • Ethane import volumes to India: Shows how far Indian crackers use gas-based feed (Monthly · Ministry of Commerce trade data)
  • US natural gas liquids output: Sets how much ethane is available to export (Monthly · EIA)

India

Reliance began importing US ethane in 2017, planning 1.6 Mt in FY2017-18 for its Dahej, Hazira and Nagothane crackers.

Sources

  1. U.S. ethane exports set a monthly record in March 2023, US Energy Information Administration (2023)
  2. U.S. ethane consumption expected to grow as new petrochemical plants come online, US Energy Information Administration (2022)
  3. APPEC: Asian olefins oversupply may last 3-4 years amid slower capacity growth, S&P Global Commodity Insights (2025)
  4. RIL to import 1.6 MT ethane from US, Business Standard (PTI) (2017)
  5. Price correlation, Material Insights, Material Insights (World Bank, FRED, IMF data)