Quantifying the surge in NGLs and crude oil from the shale

Thursday, December 08, 2011

We've written previously about the US natural gas liquids market facing the problem/blessing of a growing supply of liquids coming from the shale plays. It's a blessing for NGL consumers, and in some ways, it's a blessing, at least now, for drillers: the price of liquids moves mostly in tandem with crude and as a result has made some drilling projects economical when the price of natural gas would otherwise sink those projects economically.

But it's also a problem for petroleum refiners, where they face a declining value of those liquids coming from the refining process.

Those issues are at the center of a new report produced by Bentek Energy, a division of Platts, and Turner, Mason & Co., a refinery consultant. (Full disclosure: Platts uses Turner, Mason refining models to produce Platts Daily Yield.)

The report sees a surge of NGLs, and a raft of impacts from that rising supply in the US. According to the report, US NGL production is expected to increase more than 40% in the next 4-5 years, rising to 3.1 million b/d from about 2.2 million b/d at present.

"All of this has the potential to wreak havoc in the markets for natural gas liquids," a summary of the report said. "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. Butanes will see wider summer-winter swings in supply, demand and prices and will also see increasing exports. Natural gasoline will increasingly flow into the diluent market for Canadian heavy crude, and could experience a dramatic decline in motor gasoline blending if certain EPA vapor pressure and octane regulations are implemented."

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