STL(SZ:002648) Huaan Securities·2024-02-17 16:00Investment Rating - The report maintains a "Buy" rating for the company [8]. Core Viewpoints - The pricing logic of U.S. ethane is influenced by both energy and chemical attributes, with significant demand from ethane cracking plants and limited export potential [2][4]. - U.S. natural gas production is on the rise, with current drilling activity higher than pre-pandemic levels, leading to an expected normalization of gas prices [3][30]. - The chemical attribute of ethane is becoming more prominent as U.S. ethylene plants reach breakeven, limiting the potential for new cracking facilities [4][5]. Summary by Sections Ethane Pricing Logic - Ethane's pricing is driven by its dual role as both an energy source and a chemical feedstock, with a significant portion of demand coming from domestic cracking plants [2][22]. - The chemical demand for ethane reached 1.89 million barrels per day in 2022, accounting for 61% of total supply [2][22]. Natural Gas Supply and Demand - U.S. natural gas production has increased significantly, with an average of 106 active drilling rigs as of November 2023, compared to 118 in January 2020 [3][30]. - The average natural gas production reached 105.9 billion cubic feet per day (bcf/d) in November 2023, indicating a robust supply [30][36]. - Domestic natural gas consumption shows strong seasonality, with peak demand in summer for electricity generation and stable winter heating needs [3][60]. Chemical Industry Dynamics - The U.S. ethylene production is heavily reliant on ethane, with 80% of ethylene output derived from ethane cracking plants [4][76]. - The report anticipates limited growth in domestic ethane chemical demand over the next 2-3 years, as new cracking facilities are not expected to significantly increase demand [4][76]. Financial Projections - The company is projected to achieve net profits of 4.985 billion, 6.732 billion, and 7.486 billion yuan for the years 2023, 2024, and 2025 respectively, with corresponding price-to-earnings (P/E) ratios of 10.10, 7.48, and 6.73 [8][10].