NGLs Among Us - What's Ahead for Northeast NGL Production, Exports and Wintertime Supply?

The Marcellus/Utica production region in the northeastern U.S. is not immune to the upheaval in global energy markets. There, a number of E&Ps are implementing further cutbacks in their natural gas production. That will result in lower NGL production, which may have serious implications for regional supplies of propane for heating this coming winter. LPG exports out of the Marcus Hook terminal near Philadelphia also may be impacted. Today, we look at recent developments in the Marcellus/Utica and the potential effects of lower NGL production in the region.

It has been a wild couple of months in energy markets, including the markets for NGLs. As we said last week in Can’t Get Enough of It, for a few days in late April, a barrel of propane was worth more than a barrel of crude oil. That isn’t supposed to happen, folks. Partly it was a supply thing: production of crude oil and associated gas is declining, bringing propane supplies down with it. At the same time, though, demand for propane from U.S. steam crackers and from international markets has been relatively steady. As a result, we already are seeing flows, price relationships and differentials convulsing in response to the new reality, and projections of future supply/demand imbalances suggest a previously unthinkable possibility: a U.S. market that can’t get enough propane supply, especially if the winter of 2020-21 is a cold one.

Even an outside chance that propane supplies may fall short later this year is a particularly big deal in the northeastern U.S., which — along with the Midwest — is highly dependent on propane for heating fuel, especially in suburban, ex-urban and rural areas without natural gas distribution systems. Importantly, the “wet” or NGL-rich Marcellus/Utica play in southwestern Pennsylvania, northern West Virginia and eastern Ohio has become the Northeast’s primary supplier of propane, as well as a significant supplier of ethane, normal butane, isobutane and natural gasoline.

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