In recent weeks, both crude oil and natural gas production have breached all-time records. So it should come as no surprise the same thing happened to NGLs — production blasted to over 4.0 MMb/d in the fourth quarter of 2017, and by our estimates will move considerably higher this year. This is a particularly big deal for the ethane market, which has spent the last eight years waiting patiently for a wave of new Gulf Coast ethane-only petrochemical plants — a.k.a. “steam crackers” — to come online in 2018. Well, here we are in 2018 and new demand from the crackers is finally kicking in. The good news for petchems is that all of the incremental NGL production means the supply of ethane available to the market is growing too, right on cue. What do these developments mean for future NGL production, demand and prices? Today, we begin a new blog series discussing our updated NGL market forecasts, starting with that NGL product whose market is going through the most changes: ethane.
NGLs are a frequent topic here in the RBN blogosphere, and in recent months, we’ve discussed the pace of NGL production growth and the need for more infrastructure to handle the incremental barrels. We covered the Permian in Different for NGLs, where we projected that Permian NGLs production is expected to increase nearly 80% over the next five years. From 2016 to 2017, average annual production in the Permian grew by about 160 Mb/d, and the growth rate over the next five years will be even steeper. It was a similar story for the Marcellus/Utica in Unleashed in the (North)East, where we were looking at a 63% increase in NGL production over five years. Now we are talking more like 75%. And in Thank You, we examined the need for ONEOK’s Elk Creek Pipeline being built to move another 240 Mb/d of NGLs out of the Bakken. And in Can't Get There from Here, we looked at ethane in particular, considering the possibility that producers will need to move ethane from more distant sources to meet all the new cracker demand — a development that would likely drive prices higher.
Now, with all those new steam crackers coming online and production of both crude oil and “wet” gas (containing copious quantities of NGLs) growing fast, it looks likely that the oversupply in ethane will be enough to keep ethane prices in line — perhaps not as low as today, but certainly not as high as we would have seen if crude and wet gas production were not ramping up so dramatically.
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