wet gas

Prices for CME/NYMEX West Texas Intermediate (WTI) have been on a rollercoaster this week – falling under $30/Bbl one minute then jumping back over $32/Bbl the next. Yesterday (February 4, 2016) WTI closed down 56 Cents at $31.72/Bbl. CME Henry Hub natural gas futures fell back under $2/MMBtu to close at $1.972 yesterday. That left the crude-to-gas ratio (WTI divided by Henry Hub) at just over 16 X – a little higher than the 15 X range we’ve been seeing this year. That is nearly half as much again as the 27X average between 2009 and 2014. The futures market implies that low ratios could continue for years – with December 2024 values implying a ratio of 13.3 X. The potential consequences of these low ratios are dramatic for the natural gas liquids (NGL) business as well as the competitiveness of U.S. natural gas in international markets.  Today we describe the implications.

U.S. Lower 48 natural gas production is averaging a record 74.2 Bcf/d in September to date, according to PointLogic Energy. Meanwhile, CME’s Henry Hub natural gas futures contract has languished at an average of $2.68/MMBtu this month to date, the lowest for any September since 2001. Much of the recent gain in natural gas production has come from  new Utica Shale output.  In today’s blog, we drill down into the region’s pipeline flow data to see where exactly the growth is coming from, what’s driving it and what it could mean for natural gas supply.

In the five years since natural gas production began to take off in Appalachia, volumes in the Marcellus and Utica basins have increased by a factor of 9X.  Much of that natural gas production growth is “wet” gas containing significant volumes of NGLs. Consequently NGL production volumes have skyrocketed and midstream development has been booming.  But building all this midstream infrastructure in Appalachia does not work the way it does in other high-growth shale plays.  Making sense out of Marcellus/Utica midstream infrastructure is the subject of RBN Energy’s latest Drill Down report, “Join Together With Demand--The Who and How of Marcellus/Utica Midstream”. In today’s blog, we provide highlights of the report and discuss what’s in store for the Marcellus/Utica over the next couple of years using our new Pipeline GIS mapping system to help tie all of the assets together.

Growing volumes of natural gas liquids (NGLs) produced in the Marcellus and Utica need to find a market – inside or outside the region.  Getting them to outside markets involves transportation by pipeline, rail, truck or barge. Local demand is either from traditional “legacy” customers that consume propane, butane and natural gasoline or from new ethane-consuming projects such as proposed ethylene crackers. What’s already been done to address the demand side of the NGL equation, and what’s being planned?  Today, we conclude our series on NGL infrastructure in the Upper Ohio River Valley with a look at where all those NGLs will be heading.

<p>Fast-rising hydrocarbon production of “wet” natural gas in the eastern Utica and southwestern Marcellus has been creating tremendous opportunities for the small group of midstream firms that saw what was coming—and pounced.</p>

In the five years since gas production began to take off in the Marcellus, gas processing capacity in the northeast has expanded nearly 13 times over from 600 MMcf/d to 7,600 MMcf/d. Natural gas liquids (NGL) production from those plants began to expand significantly in 2011 and is now over 245 Mb/d. Midstream companies have developed gas processing infrastructure from a small group of stand-alone plants into a fully integrated system designed to operate without the luxury of significant NGL storage capacity. Today we begin a new series describing how the innovative infrastructure build=out has overcome regional constraints.

Production of natural gas liquids in the liquids-rich Permian Basin and Eagle Ford has been rising even more quickly than had been predicted a year or two ago. That’s put renewed pressure on midstream companies to further increase the natural gas processing and NGL take-away capacity from the two prolific “triple-plays”—which are favored by producers for their ability to generate large volumes of crude oil and natural gas as well as NGLs. Assessing the existing and planned NGL-related infrastructure of the Permian and the Eagle Ford is the focus of our new series, “I’ll Take You There”. In our opening episode, we consider what’s driving NGL production growth—and the need for new processing and pipeline capacity--in two of the most important US production regions.

NGL production in the Marcellus is growing by leaps and bounds.  There is only one play projected to grow faster – Utica.  And Utica sits just a few thousand feet below the Marcellus.  Combined NGL production from the two plays is projected to range between 450 – 600 Mb/d depending on who’s forecast you like best.  But as fast as these volumes are coming on, natural gas processing capacity and fractionation capacity are being expanded even faster.  Are the midstreamers getting ahead of the producers with 22 gas plant projects and 11 new fractionators or expansions in the works?  Or do these midstreamers know something that is not baked into the various industry production forecasts? Let’s see what the most recent projections are telling us.