Geographical Shifts In U.S. NGL Production Underlie New Market Realities

(The American Oil & Gas Reporter – August 2013) Geographical Shifts In U.S. NGL Production Underlie New Market Realities (By: E. Russell “Rusty” Braziel) 

HOUSTON–Increasing production of high-Btu “rich” natural gas is driving natural gas liquids production toward the stratosphere. U.S. propane, butanes and natural gasoline have seen production from gas processing plants increase by nearly 30 percent since early 2010. Ethane would be up by a similar percentage if U.S. ethylene crackers had the capacity to use more of the feedstock.

Such robust production growth is great news for the gas processing industry. But it also is a major challenge for the industry’s infrastructure because much of this production growth is occurring in parts of the country that have never seen this level of NGL activity–such as Appalachia and North Dakota. Even historically prolific NGL production areas such as South Texas and the Permian Basin have not seen this kind of volume growth in a very long time.

The rapid production growth is a potential problem for NGL markets, leaving a lot of NGL barrels looking for a home. Most of those barrels are eyeing a small Texas hamlet for that home: Mont Belvieu, the center of the NGL universe.

Significant investments in NGL and midstream infrastructure will be necessary to make that happen, but even after the barrels get to Mont Belvieu, there still will not be enough domestic demand to absorb the production growth.

The geographic shifts in the source of NGL production have significant implications going forward. This includes key changes in how production physically moves to market, and why the same supply-side trends that are redrawing the map on domestic NGL output have producers increasingly looking for incremental demand outside the borders of the United States.