Could it get any worse? Possibly, but the last time we saw petchem margins this bad was in the depths of the 2008-09 economic meltdown, and back then the atrocious margin levels resulted in drastic plant curtailments and in some cases permanent shutdowns. But this time around the petchem industry is in the process of bringing on even more capacity! Is the current situation a fluke, or a harbinger of things to come? In today’s blog we examine recent trends in steam cracker margins, by far the largest demand sector for natural gas liquids (NGLs) and consider what these developments may mean for NGL markets in general, and ethane in particular.

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.  

It was a wild ride for Asian butane in 2017, driven by a range of diverse market factors, including U.S. ethane and LPG exports, a government program in India to encourage switching from firewood to LPG, the OPEC/NOPEC crude oil production cuts and LPG contract pricing set by Saudi Arabia. It was a textbook example of how today’s energy markets are buffeted by changes in production trends, government intervention and the growing influence of exports. Today, we introduce a series on the supply and demand dynamics that shaped Asian butane markets in 2017, and that will drive LPG markets in Asia, Europe and the U.S. in coming years. 

Prices for heavy NGLs (propane, butanes, natural gasoline) have been rising fast since the middle of 2017, but the same cannot be said for the price of ethane. For most natural gas processors/producers, low ethane prices mean that ethane continues to be worth more when sold with natural gas (rejected) than when it is extracted and sold with the other liquids. But as NGL production continues to grow, hitting a record-high 3,968 Mb/d in October 2017, and new steam crackers are just starting to come online, there is a limit to how much ethane can be left in the residue gas stream without violating dry gas pipeline Btu specifications. How do processing plant designs, gas pipeline specs and economics play into a gas processor’s decision regarding whether to extract or reject ethane? Today, we continue our discussion of RBN’s MQQV gas processing model — this time focusing on the Quantity and Quality principles.

Not long after crude oil prices crashed in 2014, natural gas processing economics hit the skids. From late 2014 through the first half of 2017, times were tough for natural gas processors and the producers processing natural gas to extract NGLs in their plants. That’s because the per-MMBtu price difference between natural gas prices and NGL prices was low. Very low. In fact, during 2015-16, it was the lowest it’s been over the past decade except for a brief period during the 2009 financial meltdown. But things are looking up. Thanks to a big boost in from propane and butane prices — and, to a lesser extent, rising ethane and natural gasoline prices — natural gas processing economics look healthier today than they have in years. It is going to get even better as more new ethane-only steam crackers come online. Given these developments, it is clearly time for another deep dive into what makes gas processing economics work, and how the numbers are about to change. Today, we begin our latest expedition into the wilds of gas processing. 

As new ethane-only steam crackers come online and ethane exports accelerate, ethane demand is ramping up from 1.3 MMb/d today to somewhere between 2.1 and 2.3 MMb/d in 2022. The good news is that a lot of new ethane supply is becoming available — from high-Btu Permian associated gas, more gas from other oil-focused plays, and of course rapidly growing Marcellus/Utica production. Depending on what happens to oil and gas prices, somewhere between 2.5 and 3.2 MMb/d of “potential” ethane could be available by 2022 to meet that demand. So, no problem, right? Not so fast. Some of this potential ethane will be very expensive to get to market, and some won’t be able to get to market at all due to pipeline capacity constraints. How these market dynamics play out raises the possibility of wide swings in ethane prices. Today we will explore how this may play out.

The widely held expectation that Permian NGL production will rise sharply through the early 2020s has set off fierce competition among midstream companies to develop new pipeline capacity out of the play — mostly to the NGL storage and fractionation hub in Mont Belvieu, TX, but also to Corpus Christi. Only some of the incremental pipeline takeaway capacity being planned is likely to be needed, though, raising the stakes among midstreamers to line up the long-term commitments they need to finance and build their projects. Today we continue our series on NGL-related infrastructure in the U.S.’s hottest shale play with a look at efforts to add new takeaway capacity as NGL production in the Permian ramps up.