Last week the U.S. NGL markets entered uncharted territory. According to OPIS, cash propane prices in the Conway, KS market reached almost $5.00/gallon for a time, responding to a massive product shortage across the entire eastern half of the country. But at the same NGL hub, OPIS also reported that the price for ethane/propane mix (EP mix) dropped deep into negative territory at $(0.50)/gallon. That’s crazy. The seller is paying the buyer to take the product. Nothing like this has been seen before in these markets. Propane inventories continue to drop, transport trucks are moving product hundreds of miles to markets, terminals remain on allocation and a state of emergency has been declared by at least 20 state governors. The inventory graphs look so scary that the Black Swan is frozen stiff. Today we begin a series on the NGL markets of 2014, a year that this industry will be talking about for a long time.
Daily Energy Blog
There simply is not enough petrochemical demand to absorb all of the ethane that the U.S. can produce. The result is rejection - ethane sold as natural gas at fuel value rather than being extracted and used as a petrochemical feedstock. Today around 250 Mb/d of ethane is being rejected, and that number could increase by 200% over the next three years. Yes, you read that right. Rejection could triple. As NGL production from the big shale plays increases, the U.S. petrochemical industry will not be able to use most of the incremental ethane - thus rejection. But it may not play out that way. All that ethane could be exported - perhaps as liquid ethane. Or is there another possibility: Spiking ethane into the soon to be exported volumes of LNG from terminals like Cheniere Sabine Pass, Freeport, ETP/Southern Union at Lake Charles and Dominion at Cove Point? Today we continue our exploration into the possibility that surplus ethane could be exported in the form of “hot” LNG.
NGL volumes continue to climb because of all the surging “wet” shale gas production. These days about 7% of gas plant NGL production is “isobutane”, (also known as IC4, I Grade, methylpropane, R600a, iso and “izo” to our friends in Canada). Over the past two years gas plant production of iso is up about 25%, and that volume is expected to increase another 30% over the next two years. Most isobutane is used by refineries to make high-octane alkylate, but what about the rest? Today we take a closer look at this lesser known natural gas liquid (NGL) and the sometimes exotic uses it is put to.
The U.S. can make a lot more ethane than it can consume. Producers are drilling for ‘wet’ shale gas, high in natural gas liquid (NGL) content – with ethane making up more than half of that NGL volume. Unfortunately there is not enough U.S. petrochemical cracking capacity to use all that ethane. And for a whole variety of reasons the product has been notoriously difficult to export. Consequently, over 250Mb/d of ethane is being rejected – sold as natural gas instead of being processed into liquid ethane. What if there were a ready market for all this surplus ethane supply, just waiting to open its doors? Well, there just may be. The emerging U.S. LNG export market may be able to absorb a big portion of the supply imbalance, and make LNG buyers happy at the same time. In this blog series we will explore that possibility and consider the implications for the ethane market in North America.
The northern corn-belt states are winding down from a very wet bumper crop of corn which has required a lot of grain drying, fired by propane. That has translated into a shortage of propane supplies – so much so that seven governors recently issued emergency orders to expedite propane deliveries to their states. Now, with about three weeks left before the official onset of winter (and it feels like winter already), 2013 Midwestern propane problems should be behind us. But what about next year? In 2014, Cochin pipeline – one of the most significant traditional sources of propane for the region goes away. Kinder Morgan (current owner and operator of Cochin) is reversing the system and turning it into a diluent pipeline. Volumes of propane previously delivered by Cochin must come from somewhere else. Today we’ll continue our series looking at upper Midwest propane and how the region is likely to adjust in the post-Cochin market.
Corn drying in the Midwest is finally wrapping up, but farmers and grain elevators are still short of propane supplies even after emergency orders were imposed by several Midwestern governors. The shortage has contributed to a spike in propane prices and the Conway, KS market jumped above Mont Belvieu last week for the first time since February 2011. But, there is more to the story. The upper Midwest is enjoying the largest bumper crop of corn in the record books, and due to recent weather it is “wet” corn needing more drying, thus more propane. With the U.S. “bumper crop” of propane from processing shale gas flooding the market, you might wonder why there is a problem. Clearly the answer is logistics – having the barrels at the right place at the right time. And that’s the reason for more concern when we get to next year. Because one of the primary propane supply conduits to the Midwest – Cochin pipeline - goes away in early 2014. Today we start a series to look at what’s going on with Midwest propane and how that market is likely to change when Cochin is reversed and turned into a diluent pipeline.
Over the next three years, the production of natural gas liquids (NGLs) from the Marcellus/Utica could octuple (8X) to more than 650 Mb/d. Nothing like that has ever happened in the NGL business before. It has already started. Last month MarkWest officially inaugurated the Appalachian ethane business. From 5 Mb/d today we could see 200 Mb/d by this time next year if the economics to move that much ethane made sense. But they won’t. Because there is nowhere for the additional ethane to go. Already up to 250 Mb/d of U.S. ethane is being rejected – pushed back into natural gas in the Rockies, Midcontinent, and other regions. That number will be getting a lot bigger. Today we will begin an examination of the ethane tsunami and what it means for NGL markets in the Northeast and in the center of the NGL universe – Mont Belvieu, TX.
Up until a few years ago, propylene production was mostly a derivative of the petroleum refining and olefin cracking industries. But that is changing big time. Nowadays propylene demand in Asia is booming, US propane supplies are abundant and propylene output from refineries and olefin crackers is declining. Time to get serious about making propylene on purpose! As a result three new propane dehydrogenation (PDH) plants are expected online at the US Gulf Coast in 2015 and 2016 that will produce 4.3 billion pounds/year. These plants will help close the gap between increasing world propylene demand and declining “by-product” production from olefin crackers and refineries. They will also help soak up growing US propane supplies. Today we examine the recent rapid growth in PDH plant projects.
Over the past six weeks, the price of Mont Belvieu propane has strengthened by more than 20%. That’s not supposed to happen in the middle of the summer doldrums when the only growth market for propane is backyard BBQ grills. Could supply be falling? Not hardly. The most recent Energy Information Administration (EIA) numbers show propane production from natural gas processing plants hitting another record, up 42% in the past four years. You might think that kind of supply growth would crush prices. But there is an escape valve for excess propane supplies: Exports – and lots of them. Fortunately international markets have been there to soak up the barrels. Today we will examine how this is all shaking out in the U.S. propane market.
Over the past few weeks, NGL prices have dropped to levels relative to other hydrocarbon prices that we have not seen since the bad old days of 2009. Since early April 2013, the frac spread (see Another Fracing Problem and RBN Spotcheck graphs) has averaged less than a bargain basement level of $5.00/MMbtu. For months ethane at Mont Belvieu has been valued at no better than the price of natural gas at the Henry Hub. Propane at Mont Belvieu languishes below 40% of the value of crude oil, and normal butane at 50% of crude oil, levels not seen in years. Even natural gasoline (being exported in record volumes to Canada for diluent) is down to only 85% of crude. Must NGLs do some kind of dirty deeds to recapture their historical valuation? Or is this the new normal? Today we kick off a three part blog series to explore the sad case of rock bottom NGL prices.
Two weeks ago we posted part 1 of a series looking to answer the question – ‘Are we likely to run into storage issues with NGLs in PADD 1 while we are waiting for infrastructure and demand side projects such as export terminals and petrochemical facilities to be built out?’ We assessed growing supply and demand mismatches, how production will move between regions, and set the stage for today’s blog where we will examine the need for and availability of NGL storage capacity in PADD 1. In today’s blog, we will finish painting the PADD 1 NGL storage picture.
The production of natural gas liquids (NGLs) increased twice as quickly as expected just two years ago in 2011. Current production of 3.2 MMb/d (gas plants + refineries) was only supposed to be achieved in 2016 and now the forecast is for 4 MMb/d by then. The result has been more rapid implementation of infrastructure to handle NGLs and that supply has exceeded demand so that exports are required. Today we look at the impact of the rapid production ramp up.
Last week we started a blog series looking to answer the question - Are we likely to run into storage issues with NGLs while we are waiting for infrastructure and demand side projects such as export terminals and petrochemical facilities to be built out? Today we are going to take a deeper look at PADD 1 NGL market dynamics where gas plant production of NGLs is expected to grow from 63 Mb/d as reported by the EIA for February 2013, to over 585 Mb/d in 2018. We’ll assess growing supply and demand mismatches and how production will move between regions. Today we will lay the foundation for our PADD 1 NGLs storage picture.
By Al Troner, President Asia Pacific Energy Consulting (APEC)
Historically U.S. condensate production has been in the backwater of crude markets, dumped into local crude flows or more recently exported to Canada for use as heavy crude diluent. In stark contrast, the separation and processing of condensates in East of Suez markets is a major downstream activity, accounting for much of the Mideast Gulf’s naphtha exports and Asia’s feedstock supply. As U.S. condensate production increases, it is clear that new markets will be needed for the volumes – with suppliers eyeing those robust East of Suez destinations. Today we continue our blog series on international condensates examining splitter/processing capacity in the Middle East and Asia Pacific regions.
We’ve been talking about growing natural gas liquid (NGL) production in recent weeks from the Williston Basin, the Eagle Ford, the Northeast and other geographies. We have also previously discussed the mismatch between NGL production growth and incremental domestic demand, but we have yet to answer the question: are we likely to run into storage issues with NGLs while we are waiting for infrastructure and demand side projects such as export terminals and petrochemical facilities to be built out? Today we start a series of blogs examining regional storage capacity and the mismatch between expected U.S. NGLs supply - an incremental 1.5 MMb/d between 2012 and 2018, and demand growth. In today’s blog, we set the stage for the series and take a broad look at NGL Storage.
