Saudi feedstock hikes seen as a bet on US LNG exports surge

Saudi Aramco's second consecutive annual price increase in feedstock costs is hinging on the US increasing LNG exports enough to push domestic US ethane costs higher, keeping Saudi Arabia competitive in ethylene export markets, analysts said.

Effective Jan. 1, 2025, the Saudi government, through Aramco, increased the price of ethane to $3/MMBtu from $2.50/MMBtu and methane to $2.15/MMBtu from $1.75/MMBtu. The price discount for propane and butane remains unchanged at 20%, according to Anmol Bhushan, senior natural gas liquids analyst at S&P Global Energy.

Prices were increased in 2024 for the first time since 2016. Aramco declined to comment.

The widely expected resumption of LNG export permitting in the US under President Trump is likely to speed up approvals for 54 million mt/year of proposed LNG export projects in the US and Mexico, where projects need the Energy Department approvals because they would use US gas. US LNG exports are expected to reach 121.9 million mt in 2026 from 98.9 million mt this year, according to Energy Jan. 8.

"The reason that Aramco was able to make another price move this year is that the US will be increasing its LNG exports, and that will be putting upward pressure on natural gas and ethane prices within the US," said Walt Hart, head of global olefins fuels, chemicals and resource solutions at Energy. "Thus, it is less likely that an ethane price increase in Saudi Arabia might make the kingdom uncompetitive versus the US."

The US ethane price is still considerably higher than Saudi Arabia's $3/MMBtu, Hart noted, with US Mont Belvieu ethane prices between 25.4 cents/gallon to 28 cents/gallon since Jan. 1, equivalent to about $3.85/MMBtu-$4.25/MMBtu. US ethane prices are close to thermal values, with Henry Hub natural gas between $3.40/MMBtu-$4.40/MMBtu this year.

Even with US ethylene prices considerably lower than prices in Europe and Northeast Asia, US Gulf Coast variable profit margins on ethylene are expected to be "healthy" at an estimated $442/mt in January.

"Even if we took total cash costs, the US ethylene margins would be positive. Thus, variable margins in Saudi should also be healthy," Hart said.

JPMorgan estimates the new Saudi ethane prices are above the 2024 US average, and Saudi ethane crackers no longer maintain any material advantage over the US Gulf Coast. Saudi prices remain "low" for methane, it said.

Saudi Arabia's ethylene production cost -- still the lowest in the world -- is a "clear benefit for [the country] and its third-party relationships and buyers of Saudi ethane," Bhushan said.

"Saudi Arabia's move to raise the ethane price is driven by a strategic objective to preserve [its] economic value and ensure sustained profits. However, executing this maneuver requires a delicate balancing act as authorities navigate the fine line between adjusting prices to protect domestic interests and avoiding a threshold that might lead investors to favor the more competitive market conditions found in the US or other countries," he added.