NGL Prices Expected to Stay Low as New Capacity Comes Online

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Written by John Egan for IIR Energy (Sugar Land, Texas)--IIR Energy believes this month's scheduled completion of several natural gas liquids (NGL) projects in Oklahoma, Ohio, Colorado, Alberta and British Columbia will increase processing and transport options. But prices are expected to remain low due to the oversupplied North American market. Large consumers of NGLs are expected to continue benefitting, while producers will try to hold on in the current low-price environment.

IIR Energy's NGLs Live database shows some of the NGL projects scheduled to wrap up construction in September:

• Phase I of the West Montney Refrigeration Plant, which will process up to 60 million cubic feet per day (cf/d) of natural gas per day in Peace River, British Columbia.
• Chisholm Cryogenic Natural Gas-Processing Plant, located in Okarche, Oklahoma, which will be able to process up to 100 million cf/d of gas and produce up to 15,000 barrels per day (BBL/d) of Y-grade NGLs in the state's SCOOP play.
• The expansion of the Red Tail Refrigeration Natural Gas-Processing Plant in Colorado will add another 50 million cf/d of local gas-processing capacity.
• Seneca Cryogenic Natural Gas Plant, an existing Ohio facility whose capacity is being expanded by 200 million cf/d. The de-ethanizer under construction will remove up to 38,000 BBL/d of NGLs from a gas stream in the Utica Shale.
• Fort McMurray Natural Gas Liquids Extraction Plant, which will extract up to 12,000 BBL/d of NGLs from oil sands produced near Fort McMurray, Alberta.

IIR Energy also is tracking the scheduled completion next month of several other NGL projects in West Virginia, Texas, Illinois and Louisiana. When those projects are brought online, market conditions are expected to worsen slightly for producers. For NGL consumers, however, added processing capacity and transportation choices provide valuable additional optionality.

Jesus Davis, Industrial Info's vice president of research for Oil & Gas Production, Pipelines and Terminals, said: "Our NGLs Live database shows a long string of processing and pipeline projects coming online in the next few months and years. Domestic consumption is not rising nearly fast enough to soak up all the extra product, and falling crude-oil prices have turned the fundamentals of the export market against domestic NGL producers. Now, in some markets, naphtha is a more economical alternative to NGLs. So for producers, a difficult situation has become even harder."

Davis projected continued thin margins for traders, and low feedstock costs for petrochemical manufacturers: "Whether this is good news or bad news depends on what business you're in. Using our NGLs Live database allows all market participants to stay abreast of capacity additions, unplanned outages and other factors that affect market fundamentals."

Prices for NGLs have fallen sharply in recent years as production capacity grew faster than domestic consumption and export volumes. Producers face more bad news on the horizon, as production is expected to increase by up to 50% by 2020, energy experts told an industry conference last month in Denver.

U.S. NGLs production has risen by about 50% since 2005, to an estimated 3.5 million BBL/d, according to RBN Energy's (Houston, Texas) Kelly Van Hull. She predicted domestic NGLs production will rise by between 1 million and 2 million BBL/d by 2020, depending on the price of crude oil. Those estimates include ethane rejection. She said growing volumes of "wet" gas projection are leading to the growth of NGLs.

IIR Energy, a unit of Industrial Info Resources (IIR), is the leading provider of supply-side market intelligence for the energy market, including Electric Power Generation; Oil & Gas Storage; Oil & Gas Transmission and Production; Alternative Fuels, such as biodiesel, ethanol, and coal gasification; and the Petroleum Refining industries. IIR Energy provides time-sensitive, critical market information that enables asset owners, developers, regulators, and financial and physical participants to enhance their trading strategies and minimize market risk.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, 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.