The Marcellus Shale, among other regions, could see persistent ethane rejection until the market comes back into balance, according to analysts at Raymond James & Associates Inc.
Composite natural gas liquids (NGL) prices will remain weak through this year, averaging 74 cents/gallon and bottoming during the second quarter at an average of 68 cents/gallon, Raymond James analysts said Monday.
Prices should rebound next year to average 85 cents/gallon, indicating an implied ethane price of 27-32 cents/gallon. For 2015, Raymond James is projecting a composite price of 88 cents/gallon, reflecting average ethane prices of 30-35 cents/gallon. The NGL market is suffering from oversupply and demand growth for ethane that has been lumpy and slow to materialize, Raymond James’ Darren Horowitz and Edward Rowe said.
Ethane cracker conversions, expansions and de-bottlenecking will help provide incremental demand to the ethane market; however, the ethane surplus could last through 2016, the analysts said. This would lead to “persistent periods” of ethane rejection in the Rockies, Midcontinent and in the Marcellus Shale region.
“The largest driver of incremental ethane demand will be new-builds that will come online in the 2017-2020 timeframe,” the analysts said. “The market will become relatively balanced in 2017 when most of the new world-scale ethylene plant capacity additions arrive online. However, most importantly, we believe the oversupplied nature of ethane in 2014-2015 could potentially have dramatic impacts not only on the NGL market but the gas market as well.”
The analysts projected that demand for ethane will grow at a compound basis of about 10% between 2012 and 2016 before accounting for ethane-propane blending and ethane exports to Canada. They said by some time in 2016, an average of 80,000 b/d of U.S. ethane could make its way to Canada, with roughly half of that going to Sarnia, ON.
As with ethane, propane inventories are expected to remain high during 2013, making propane exports a “vital component” in balancing the U.S. NGL market. Upcoming export projects are expected to bring price relief as they come online, helping to shift the propane market into balance by 2014, the analysts said.
The firm’s NGL outlook is based in part on its forecast of continuing growth in natural gas output (see Shale Daily, Jan. 24).
“Given the amount of production that is on tap through 2016, we believe NGL prices must decrease enough to slow production in the basins that remain marginally economic,” Raymond James said Monday. With increased [liquid propane gas (LPG)] exports to Latin America and growing demand for natural gasoline as a diluent for bitumen production, the U.S. is exporting record levels of NGLs to help relieve this supply glut.”
Recently, analysts at U.S. Capital Advisors warned of more widespread ethane rejection to come during 2013 (see Daily GPI, Jan. 7). All this follows a year that saw spot prices for ethane and propane to plumb five-year depths, according to the U.S. Energy Information Administration (see Daily GPI, Jan. 16).
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