Released April 24, 2013 | DENVER, COLORADO
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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--U.S. production of natural gas liquids (NGLs) is scheduled to nearly double over the next 10 years, adding new supply to a glutted market and increasing the importance of export terminals, according to speakers at an Oil & Gas conference last week in Denver. "At today's NGL prices, and given the outlook for new capacity, you really need to believe in NGLs if you're going to move forward with a large capital program," said Kevin Williams, senior vice president of DCP Midstream LLC (NYSE:DPM) (Denver, Colorado), in an interview at the 7th Annual Platts Rockies Oil & Gas Conference.
"NGL prices will remain challenged in 2013," said Anne Keller, manager of NGL research at Wood Mackenzie Incorporated (Edinburgh, Scotland), to about 250 attendees at the conference.
U.S. NGL production is projected to increase to about 4.5 million barrels per day (BBL/d) by 2023, up nearly 100% from 2012 production of about 2.3 million BBL/d, according to BENTEK Energy. Regions expected to see the greatest increase in NGL production over that time include the Marcellus, Eagle Ford and the Bakken shale formations.
But domestic demand has not been able to keep up with recent capacity additions, and export capacity is limited, speakers said at the conference. Those factors have combined to push NGL prices down to about 85 cents per gallon, well under the $1.25 per gallon those commodities fetched this time last year, Williams told Industrial Info.
NGL producers, processors and transporters are looking hopefully to the future, when propane export projects come online, opening up opportunities for domestically produced propane. Propane and butane exports totaled about 200,000 BBL/d in 2012, but export projects under development will more than quadruple that capacity to about 900,000 BBL/d by 2023, said Michael Lutz, vice president for global commercial at Hess Corporation (NYSE:HES) (New York, New York), at the conference.
Lutz said the most promising propane export markets are in Asia and Europe, where demand far outstrips supply. Asia is running a 20 million-tonne-per-year supply deficit, while Europe's annual propane demand outstrips supply by about 5 million to 7 million tonnes per year. In capturing overseas propane market share, the U.S. can expect a tough competitive challenge. U.S. propane prices are about 50% less than those in the Middle East, but that region has about 20 million tonnes per year of surplus production capacity, Lutz said. This suggests Middle East propane prices could be lowered to counter U.S. export initiatives.
"The propane market is expected to tighten in 2015-16, as export capacity comes online," Keller said. "By 2020, exports could reach 600,000 BBL/d, four times the level of 2010 exports. But for the next 24 months, until those export terminals are completed in 2015, the outlook is not particularly bullish for propane."
Domestic demand for ethane, another NGL, depends on the construction of large petrochemical plants in the U.S. Several of those projects remain under development, with start-up dates in the 2017-18 timeframe, Rusty Braziel, president of RBN Energy LLC (Houston, Texas), told the conference. But until that time, "ethane will be in a surplus supply situation, and will continue to experience prolonged periods of rejection."
Keller agreed: "Ethane inventories are high today, and today's low prices have curtailed supply growth. New ethylene plants are still two to three years away." She predicts a difficult domestic ethane market until those new ethylene plants come online, absorbing some of domestic supply.
Braziel wonders if the bright future sketched for NGLs will ever materialize. "You can't buy an air permit for an ethylene plant in the Gulf Coast today," he said, which is why ethane rejection will continue for the next five years.
Williams, the DCP executive, said his company's NGL production will rise by about 25%, to about 500,000 BBL/d, over the next few years while it builds "super systems" to gather and process NGLs. "We've placed our bet," he told the conference. "We are committed to aggressively growing our NGP production, as well as gathering and processing business."
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.
"NGL prices will remain challenged in 2013," said Anne Keller, manager of NGL research at Wood Mackenzie Incorporated (Edinburgh, Scotland), to about 250 attendees at the conference.
U.S. NGL production is projected to increase to about 4.5 million barrels per day (BBL/d) by 2023, up nearly 100% from 2012 production of about 2.3 million BBL/d, according to BENTEK Energy. Regions expected to see the greatest increase in NGL production over that time include the Marcellus, Eagle Ford and the Bakken shale formations.
But domestic demand has not been able to keep up with recent capacity additions, and export capacity is limited, speakers said at the conference. Those factors have combined to push NGL prices down to about 85 cents per gallon, well under the $1.25 per gallon those commodities fetched this time last year, Williams told Industrial Info.
NGL producers, processors and transporters are looking hopefully to the future, when propane export projects come online, opening up opportunities for domestically produced propane. Propane and butane exports totaled about 200,000 BBL/d in 2012, but export projects under development will more than quadruple that capacity to about 900,000 BBL/d by 2023, said Michael Lutz, vice president for global commercial at Hess Corporation (NYSE:HES) (New York, New York), at the conference.
Lutz said the most promising propane export markets are in Asia and Europe, where demand far outstrips supply. Asia is running a 20 million-tonne-per-year supply deficit, while Europe's annual propane demand outstrips supply by about 5 million to 7 million tonnes per year. In capturing overseas propane market share, the U.S. can expect a tough competitive challenge. U.S. propane prices are about 50% less than those in the Middle East, but that region has about 20 million tonnes per year of surplus production capacity, Lutz said. This suggests Middle East propane prices could be lowered to counter U.S. export initiatives.
"The propane market is expected to tighten in 2015-16, as export capacity comes online," Keller said. "By 2020, exports could reach 600,000 BBL/d, four times the level of 2010 exports. But for the next 24 months, until those export terminals are completed in 2015, the outlook is not particularly bullish for propane."
Domestic demand for ethane, another NGL, depends on the construction of large petrochemical plants in the U.S. Several of those projects remain under development, with start-up dates in the 2017-18 timeframe, Rusty Braziel, president of RBN Energy LLC (Houston, Texas), told the conference. But until that time, "ethane will be in a surplus supply situation, and will continue to experience prolonged periods of rejection."
Keller agreed: "Ethane inventories are high today, and today's low prices have curtailed supply growth. New ethylene plants are still two to three years away." She predicts a difficult domestic ethane market until those new ethylene plants come online, absorbing some of domestic supply.
Braziel wonders if the bright future sketched for NGLs will ever materialize. "You can't buy an air permit for an ethylene plant in the Gulf Coast today," he said, which is why ethane rejection will continue for the next five years.
Williams, the DCP executive, said his company's NGL production will rise by about 25%, to about 500,000 BBL/d, over the next few years while it builds "super systems" to gather and process NGLs. "We've placed our bet," he told the conference. "We are committed to aggressively growing our NGP production, as well as gathering and processing business."
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.
