NGL Production Forecast to Continue Growing Until 2020

---

Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Prices for natural gas liquids (NGLs) have been "crushed," but more bad news is on the horizon, as production is expected to increase by as much as 50% by 2020, Kelly Van Hull, manager of energy analytics at RBN Energy LLC (Houston, Texas) told attendees at the 27th Annual Rocky Mountain Energy Summit in Denver late last month.

Click on icon at right to view rising NGL production in the U.S. since 2005.

U.S. NGL production has risen by about 50% since 2005, to about 3.5 million barrels per day (BBL/d), she told the conference, organized by the Colorado Oil & Gas Association (COGA) (Denver, Colorado). Speaking August 27, she laid out two production scenarios going forward to 2020:

• In a "contraction" scenario, where crude-oil prices remain in the $50 per barrel range this year, and only rise to an average of $65 per barrel by 2020, NGL production could still increase by another 1 million BBL/d by 2020, to about 4.5 million BBL/d.
• But in a "growth" scenario, where crude-oil prices rise significantly, to an average of $80 per barrel in 2017 and $95 per barrel in 2020, NGL production will surge by nearly 3 million BBL/d in 2020, to nearly 5.5 million BBL/d.

All of her estimates include an allowance for ethane rejection, an increasingly common decision by producers to burn the gas and NGL as fuel rather than incur the added cost to process it.

Click on the icon at right to see projections of NGL production to 2020 under two price scenarios.

"Growing volumes of 'wet,' high-Btu [British thermal unit] gas are driving increases in NGL production," she told the COGA conference. By 2020, five major production areas--Permian Basin, Williston Basin, Eagle Ford Shale, Marcellus Shale and Utica Shale--will make up 60% of all U.S. NGLs production in RBN Energy's "contraction" scenario, Van Hull said, predicting NGL production will grow most sharply in the Eagle Ford Shale.

Developers of NGLs pipelines and processors are investing aggressively to meet the expected surge in production, Van Hull continued. NGL processing capacity is forecast to increase in PADDs I through IV during the 2015-2018 period, with PADD 1 and PADD II increasing processing capacity the most.

Click on the icon to see a forecast of NGLs processing capacity gains in the 2015-2018 period.

A dozen NGLs pipelines are scheduled to be built or expanded between 2015 and 2018 to move increased production to processing centers, Van Hull noted. And more than 1 million BBL/d of fractionation capacity additions are scheduled to be built during that time.

Although Van Hull didn't try to forecast NGLs prices, it didn't appear that U.S. supply-demand fundamentals would be coming into balance anytime soon. NGL economics depend on an export market, but production has grown faster than overseas demand. Also, the declining cost of crude oil has made naphtha a more economical alternative to NGLs in some markets, lowering demand there. For more on U.S. NGLs markets and project activity, see July 22, 2015, article - NGL Projects Under Pressure Due to Low Prices and Over-Supplied Market and March 11, 2015, article - Increased Refinery Throughput, NGL Production Boost U.S. Petroleum Product Exports.

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.