Wild Ride - What’s Driving NGL Prices and Differentials?

Part 1: Rising Y-Grade Production and Tight Mont Belvieu Frac Capacity

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The U.S. NGL market has entered uncharted territory, with potentially significant implications for producers of crude oil and “wet” natural gas. Mont Belvieu fractionation capacity is either maxed out or close to it. Production of NGL purity products is as always constrained to what can be fractionated, and with ethane demand ramping up as new petchem plants come online and export markets beckon, ethane prices are soaring. At the same time, production of y-grade — that mix of NGLs separated out at gas processing plants — continues to increase in the Permian and around the country. Which raises important questions. For example, if the pace of fractionation cannot pick up until more fractionation capacity comes online, what happens to those incremental barrels of y-grade being produced? How much more y-grade can be squirreled away in underground storage caverns? And what happens if y-grade storage capacity fills up?

Increasing volumes of NGL production have been moving to Mont Belvieu in the form of y-grade, filling up the 2.2 MMb/d of fractionator capacity at the hub. But the new fractionation capacity planned at Mont Belvieu will only come online gradually, and it will be at least the first quarter of 2019 and possibly not until a year or longer after that before fractionation-capacity constraints in Mont Belvieu are resolved.

Key take-aways from the report include:

  • U.S. natural gas liquids production is up sharply, spurred on in part by crude oil prices that encourage more drilling and completion, and flows of NGLs into the Mont Belvieu and Conway hubs are up.
  • Fractionation capacity in Mont Belvieu the nation’s leading NGL hub has not kept pace with NGL production growth; fractionators there are now operating at or near full capacity.
  • Delays on the Mariner East 2 pipeline and off-and-on closures on Mariner East 1 have spurred more railed shipments of propane to Conway and markets served by that hub.
  • The differentials between purity-product prices at Conway and Mont Belvieu widened and stayed wide.
  • The situation is not likely to improve until new fractionators in Mont Belvieu come online over the next year and a half.

Wild Ride” is included in RBN Energy’s 2018 Drill Down report series, a suite of reports covering many of the key issues expected to impact the markets for crude oil, natural gas and natural gas liquids. Drill Down reports are part of RBN Backstage Pass™ premium resources that also include Blog Archive Access, Spotcheck Indicators, Market Fundamentals Webcasts, Get-Togethers and more. By subscribing to RBN’s Backstage Pass™ Premium Services, you plug into our network and get direct access to our premium resources.

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