Despite sagging oil and natural gas liquids (NGL) prices, investments in expanding midstream infrastructure continue in the Permian Basin and Eagle Ford. In the past several weeks, Energy Transfer Partners (ETP) said its Lone Star NGL unit will build a 533-mile NGL pipeline from the Permian to the Mont Belvieu, TX fractionation hub, and the company announced plans for a 200 MMcf/d natural gas processing plant along its Rich Eagle Ford Mainline natural gas pipeline (and another in the Eaglebine/Eagle Ford East). Today we continue our company-by-company look at midstream infrastructure development in the Permian and Eagle Ford with a focus on Energy Transfer.
Daily Energy Blog
It remains to be seen to what extent the recent crash in oil prices--and the sympathetic decline in prices for natural gas liquids (NGLs) - will lead to major drilling and production pull-backs in some U.S. shale plays. What seems clear, though, is that the higher-grade, liquids-rich areas at the heart of the Eagle Ford and Permian Basin will continue to experience at least modest levels of drilling activity and still-strong production for some time to come. That should provide considerable relief to the midstream companies that have been investing heavily in NGL infrastructure in the Eagle Ford and Permian the past few years. Today, we continue our company-by-company look at existing and planned natural gas processing plants, fractionators and NGL pipelines in two of the most productive plays in the U.S.
The need for natural gas processing capacity, new or expanded NGL pipelines and other infrastructure in the Permian Basin and the Eagle Ford has spurred a competitive frenzy among midstream companies. NGL production in the two prolific regions has more than doubled in the past four years; it now tops 1.1 MMb/d. Under RBN’s Growth Scenario that assumes output will continue to increase over the near term despite the recent price slump – production in the two regions would rise another 500 Mb/d by 2019. Given that infrastructure in parts of the Permian and Eagle Ford already is struggling to keep pace, it is quite possible that midstream companies will continue to develop new projects. Today, we begin our company-by-company look at existing infrastructure and planned projects.
Production of natural gas liquids in the liquids-rich Permian Basin and Eagle Ford has been rising even more quickly than had been predicted a year or two ago. That’s put renewed pressure on midstream companies to further increase the natural gas processing and NGL take-away capacity from the two prolific “triple-plays”—which are favored by producers for their ability to generate large volumes of crude oil and natural gas as well as NGLs. Assessing the existing and planned NGL-related infrastructure of the Permian and the Eagle Ford is the focus of our new series, “I’ll Take You There”. In our opening episode, we consider what’s driving NGL production growth—and the need for new processing and pipeline capacity--in two of the most important US production regions.
According to the U.S. Department of Agriculture, this year’s corn crop was 94 percent harvested by November 24, 2014. Unlike the 2013 harvest season, related crop drying activity by farmers to extract moisture from harvested corn has not led to shortages of propane- the main fuel used to power dryers. A wetter than usual crop last year started a Midwest propane shortage that morphed into a crisis by January when Polar Vortex winter weather spiked demand again and pushed prices above $4/Gal. This year the Midwest propane market has to cope with the loss of a major transport artery – the Cochin pipeline that used to bring Canadian propane supplies to the Midwest but has now been reversed to carry U.S. diluent to Canada. Today we examine new Midwest propane delivery infrastructure.
The ratio of Mont Belvieu ethane prices to the price of natural gas at the Henry Hub on a BTU equivalent basis has been below 100% since March. That means ethane is worth more as gas than as liquid ethane, which was bad enough for ethane producers. But two weeks ago the bottom dropped out from under that ratio, and it now wallows below 80%. At that level, every molecule of ethane being recovered would theoretically be worth far more selling it as gas anywhere in the U.S. So have ethane production numbers been falling? Nope. Ethane production for the past four months reported by EIA has averaged an all-time high. Ethane extraction economics are upside down but ethane production is increasing. Today we examine the reasons why ethane is being extracted even when the economics don’t seem to make sense.
Last winter a Midwest propane shortage of epic proportions caused prices at the Conway, KS trading hub to spike over $4/Gal in January 2014 (nearly twice the price of crude oil at the time). The shortage was caused by a perfect storm of events starting with high propane demand from farmers for crop drying in the late fall and ending with record retail and commercial heating demand during the Polar Vortex cold weather in January. The high demand was compounded by the partial closure of the Kinder Morgan Cochin pipeline supplying propane to the Midwest from Western Canada and a temporary shutdown of the Hess Tioga fractionation plant in North Dakota, not to mention booming Gulf Coast propane exports reducing domestic availability. This year the Midwest propane market appears to be much better supplied in spite of the loss of the Cochin pipeline that has now been reversed to carry diluent to Canada. Prices should therefore be less volatile than last year – unless Mother Nature throws another icy winter curve ball. Today we look Midwest propane prices and supply this year.
On Thursday, November 20, the ratio of ethane to natural gas hit its lowest point since 2005 – ethane only 64% of natural gas on a BTU basis. According to OPIS, the price of ethane in Mont Belvieu was 19.25 cents/gallon while natural gas at Henry Hub was $4.49/MMbtu. At this level it makes economic sense to reject as much ethane as possible. All the rest of the ethane that gets produced needs to find a use, a purpose, a home. Demand for ethane as a feedstock for the petrochemical industry will rise considerably as new ethane cracking capacity comes online, mostly in the 2017-19 period. Even so, ethane rejection is likely to remain commonplace for the foreseeable future. But what about ethane exports, not just to Canada but to Western Europe, Asia and other overseas markets? Today we update developments on the ethane export front.
A drum we have been beating with some regularity here at RBN is that, thanks to fast-rising production in the Eagle Ford, Permian, Marcellus/Utica and other “wet” natural gas plays, the US is awash in ethane and will become even more so. As it turns out, we now expect that “potential ethane” production will increase even more quickly than we had previously thought, to 2 MMb/d in 2016 and 2.6 MMB/d in 2019. We also believe that while the half dozen world-class steam crackers expected to come online the next few years will use some of the increased output, there will still be a lot of surplus ethane left to export—or, failing that, to reject into natural gas. In today’s blog, we provide updates on ethane production, economics and rejection, and on the potential for new ethane-consuming steam crackers and increasing ethane exports.
The Panama Canal expansion, set for a January 2016 debut, will slash the travel time for larger ships ferrying U.S.-sourced LNG and LPGs from the Gulf Coast (or East Coast) to Japanese and other Asian buyers. And—no surprise here--for ship charterers, time is money, and the ability to make three roundtrips instead of two every three months is a big deal. Being able to use ships with larger, “New Panamax” dimensions is welcome news to Asian utilities awaiting delivery of American LNG, and to Asian petrochemical manufacturers seeking to diversify their LPG sourcing and/or shift from naphtha to LPGs as their preferred feedstock. In today’s blog, we continue our look at what longer, wider and deeper canal locks mean for U.S. hydrocarbon exports.
US natural gas liquids (NGL) production is growing fast, and surplus volumes are moving to export markets. NGL production from natural gas processors increased from 1.7 MMb/d in early 2009 to 3.0 MMb/d this year (2014), and it is expected to continue growing to 4.5 MMb/d by 2019. Despite the important role of NGLs, these markets are not well understood, both due to their complexity and the unique aspects of their production, transportation, storage and use. One of the most misunderstood aspects of NGL markets – the extraction of NGLs from natural gas, is the subject of RBN’s latest Drill-Down Report. In today’s blog we’ll look at highlights of the report which reviews the basics of natural gas processing, current NGL markets, an outlook for NGL production, the health of NGL processing as measured by the Frac Spread, and a detailed review of RBN’s gas processing economics model.
There is no doubt about it: With its location, infrastructure and long history, Mont Belvieu, Texas, is and will remain the center of the NGL fractionation world. It is worth noting, though, that fast-increasing production in the “wet” Marcellus and Utica has been spurring development of a new NGL hub of sorts in southwestern Pennsylvania, West Virginia and eastern Ohio. But the fractionation sector in the Utica/Marcellus is an orange to Mont Belvieu’s apple—that is, the infrastructure needed to separate NGL into its various purity products is evolving in an entirely different (and, well, more “fractionated”) way near Houston, PA than it did near Houston, TX. Today we explain this and summarize new fractionation-related developments in the Utica/Marcellus.
As we said in Part One of this series, the production of NGLs has risen sharply in the past five years, and the pace of growth is only increasing. In response, the four leading fractionators in Mont Belvieu have been adding new capacity and planning more. They also have been adding pipeline capacity to move NGLs in and out of Mont Belvieu’s massive storage capacity and building and expanding export terminals nearby to facilitate the export of LPG, ethane and other NGL-based products to consumers overseas. We also discussed how geography and geology have helped to make Mont Belvieu (30 miles east of Houston) the center of US fractionation activity. As we said, it is located near several oil and gas production regions; it is in the heart of petrochemical production; it is along the coast (a must for importing and exporting); and it sits atop one of the world’s largest salt dome formations). Finally, we talked about how fractionators in Mont Belvieu compete with each other for business primarily on price (fractionation fees) and logistics (the ability to provide the pipelines and storage needed to smoothly move product through the process), and how fractionators in other regions are always looking to take some of Mont Belvieu’s market share.
Ever-increasing production of natural gas liquids is driving another round of fractionation capacity expansions in Mont Belvieu, TX, which is—and will remain—the hub of US fractionation activity. But Mont Belvieu fractionators are not without competition. Huge increases in fractionator capacity are also coming on-line in Appalachia to handle the rising volumes of natural gas liquids (NGLs) coming out of the Marcellus and Utica. Mont Belvieu may be king of fractionation, but others want a share of the kingdom. Today we update the ongoing NGL production boom and plans to add fractionation capacity in Mont Belvieu and NGL-related export capability nearby.
Big increases in LPG (propane and butane) exports are planned for the west coast. In March (2014) Petrogas purchased the Ferndale, WA terminal from Chevron – the only existing west coast LPG terminal. Then in April, Sage Midstream announced that the company is developing another LPG terminal about 200 miles south at the Port of Longview, WA. Both terminals are primarily targeting propane exports, not the export of butane that has been the mainstay of Ferndale for decades. What is the logic behind these deals? What needs to happen to make them work? Today in this second part of our series on the new west coast LPG game, we take a closer look at these two facilities, including their potential supply and market destinations.