Natural gas liquids (NGL) economics continued to improve in October, and the petrochemical industry's conversion to lighter feedstocks, namely ethane, has been happening more quickly than expected, analysts at Wells Fargo Securities said Monday.

Amidst the bullish NGL news, Enterprise Products Partners LP has just brought online another NGL fractionator at its Mont Belvieu, TX, facility (see Daily GPI, Dec. 1). While the current market for NGLs is strong, the Wells Fargo analysts maintained the cautious outlook they have expressed in earlier notes (see Daily GPI, Sept. 22).

"Longer term, we are more cautious on ethane pricing based on our expectations for increased supply and limited incremental demand," the Wells Fargo team said. "We believe the ethane market could become oversupplied by approximately 40,000-95,000 b/d [the range is dependent on whether Marcellus (Shale) ethane reaches the Gulf Coast] in 2012, based on identified projects by midstream companies."

However, October saw a 10.2% increase in the composite price for the NGL barrel to $1.15/gal from $1.05/gal in September, the analysts noted. "Crude oil prices increased by 8.9% in October, to $81.82/bbl from $75.17/bbl in September. The NGL-to-crude oil ratio increased slightly, to 59% from 58%. Processing margin increased 20.7% in October, to 86 cents/gal from 71 cents/gal in September, due to the increase in NGL prices combined with a 12% decrease in natural gas prices."

Meanwhile, as Enterprise COO Jim Teague continued to predict Monday, the petrochemical industry has been stepping up to soak up the growing ethane supply.

"Notably, conversions of heavy- to light-end feedslate capacity by petrochemical plants appear to be progressing faster than our initial expectations," the Wells Fargo analysts said. "Demand for ethane reached a record high of 961,000 b/d in September 2010. We forecast that 2011 ethane consumption could increase even higher, to approximately 970,000 b/d by year-end, which would represent an estimated 10% year/year increase."

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