Traders longing for the days of wide natural gas basis spreads can look to natural gas liquids (NGL) and crude oil to get their arbitrage fix, according to Bentek Energy LLC.
"For the next few years, regional basis differentials for NGLs and crude will be wide and volatile due to logistical constraints," the firm said in a note detailing research it has conducted with consultancy Turner, Mason & Co. (TMC).
The reason for the NGL and crude spreads and volatility is booming production of both, which is coming from shale plays, along with infrastructure constraints and bottlenecks. Bentek/TMC project that U.S. gas plant NGL production will increase by more than 950,000 b/d by the end of 2016. Over the same period they expect U.S. and Canadian crude production to grow by more than 2.8 million b/d.
"All of this has the potential to wreak havoc in the markets for natural gas liquids," Bentek said in its note. "Significant new investment is needed to process, store, transport and fractionate growing NGL production.
"Surplus ethane volumes need a home in the petrochemical industry. Propane demand in the residential/commercial sector is down, and dock space expansions are needed to ship surplus propane to offshore markets."
Additionally, butane will experience wider seasonal swings in supply, demand and prices, and more butanes will be exported, Bentek said. More natural gasoline will be used as a diluent for heavy crude in Canada while its use in gasoline blending could decline depending on the outcome of potential regulation at the Environmental Protection Agency.
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