Production of natural gas liquids in the Northeast has been rising sharply for several years now, challenging the ability of NGL producers and midstream companies to deal with it all. Lately, though, drilling in “wet” gas parts of the Marcellus and Utica shale plays has slowed, mostly because prices for NGLs have sagged due to lower crude prices and the high cost of takeaway capacity, thereby reducing the incentive to drill for the wet gas responsible for NGL production growth. However, it is quite possible that total NGL production growth could continue for some period of time as more ethane is extracted from wet gas instead of being “rejected”. Meanwhile, new NGL pipeline capacity out of the Marcellus/Utica has been coming online, providing a relief valve of sorts. Today we begin a blog series on recent developments regarding Northeast NGL production, takeaway capacity and pricing.
The ratio of NGL-to-crude oil prices looks like it will be rebounding, and over the next two or three years could rise to levels not seen since the Shale Revolution brought down NGL prices at the end of 2012, a signal that all of the new NGL-consuming petrochemical cracker projects now under construction may not be as lucrative as their developers had once hoped. Several factors are driving the ratio’s rise: increasing U.S. demand for NGLs; more exports; stubbornly low crude oil prices and a lower trajectory of NGL production growth. Today, we examine the historical relationship between NGL and crude oil prices and the reasons why that ratio may be headed back above 50%.
This week the first Gulf Coast ethane export cargo will depart Morgan’s Point, Enterprise Products Partners’ new export terminal on the Houston Ship Channel. This is a history-making event for at least three reasons. First, it inaugurates ethane exports from the Gulf Coast, only five months after the first-ever U.S. overseas ethane exports out of Sunoco Logistics’ Marcus Hook, PA, terminal. Second, it launches a battle for Mont Belvieu ethane, to be fought between ethane exporters and new ethane-only steam crackers (ethylene plants) that will be coming online along the Texas/Louisiana coast over the next couple of years. And third, Morgan’s Point is not just another export terminal. It is a location steeped in Texas history, known in the 1830s as New Washington, with an important role in the Battle of San Jacinto – decisive battle of the Texas Revolution -- and legend has it, inextricably tied to the Texas anthem “The Yellow Rose of Texas.” In today’s blog we examine the upcoming fight between ethane exporters and U.S. crackers.
Canadian ethylene plants have been receiving U.S.-sourced ethane by pipeline for two and a half years now, and waterborne ethane exports from Marcus Hook, PA to Norway started earlier in 2016. Soon the real fun will begin, when Enterprise Products Partners initiates (and quickly ramps up) ethane exports from a new, 200 Mb/d terminal on the Houston Ship Channel at Morgan’s Point. The destinations of the ships leaving Morgan’s Point are likely to be places like India, Brazil, Europe, and maybe even Mexico. Today, we consider the imminent bump-up in U.S. ethane export capacity, the international markets ethane will be headed to in the near-term, and the longer-term question about how much ethane exports can grow.
Shell Chemicals is taking steps that suggest it finally may be ready to pull the trigger on a long-debated petrochemical complex which would include an ethylene plant (steam cracker) and three polyethylene units in the heart of the “wet” Marcellus/Utica natural gas liquids production region. If the $3+ billion project advances to construction soon, it would significantly impact ethane market dynamics, not just in Ohio/Pennsylvania/West Virginia but along the Gulf Coast too. And if it turns out we’re in for extended stagnation in drilling and production, the Shell cracker also may undermine plans to build additional NGL pipeline capacity out of the Marcellus/Utica—or any other cracker there. Today we discuss the likelihood of Shell proceeding with its Beaver County, PA cracker and the effects the project’s development might have.
If it persists, the oil price crash may have undermined many of the assumptions behind massive infrastructure investments in steam cracker plants and export facilities for natural gas liquids (NGLs). These projects expected to take advantage of booming domestic NGL production and low NGL prices relative to crude. Yet take-or-pay commitments and committed investment in plant infrastructure means they may be exposed to poor returns if crude prices remain low. Today we detail analysis in the latest RBN Energy Drill Down Report to develop NGL supply, demand and pricing scenarios.