High natural gas liquids (NGL) prices relative to natural gas, combined with a boost in production in the gas shale plays and cryogenic gas processing technologies, will continue to require new infrastructure for the U.S. liquids market, according to a new report by Evergreen, CO-based Bentek Energy LLC.
"The Rich Get Richer: Shale Gas and NGLs," released on Tuesday, examines the net impacts of the regional shift in production and the consequences for regional markets.
"A large portion of financial windfall from shale gas production is flowing to companies near rich plays such as the Eagle Ford and Granite Wash," said Bentek Managing Director Rusty Braziel. "With new drilling in the Gulf of Mexico currently chilled by a regulatory deep freeze in the wake of the BP [Deepwater] Horizon disaster, NGL production is effectively shifting westward."
This shift of the "NGL production epicenter" has resulted in new midstream infrastructure investments in pipelines, gas processing plants and other facilities to serve an area known as "The Liquids Fairway," said the report. "Most of the prolific rich gas and crude oil plays are within the fairway, which starts in South Texas and runs due north up the middle portion of the U.S., ending in Saskatchewan, Canada."
The boost in NGL supplies is expected to benefit several industries, with the petrochemicals industry "by far the market that will benefit the most," Braziel told NGI. "In terms of overall demand for NGLs, the big news is for the chemicals sector."
Dow Chemical Co. said last week it plans to boost its ethane cracking capabilities on the Gulf Coast in the next few years because of cheaper ethane prices (see Daily GPI, Dec. 3). And the American Chemistry Council on Monday reported that increased gas supplies were enabling the U.S. chemicals manufacturing sector to improve (see related story).
"One of the things we looked at in this study is the number of new fractionation projects that are either being completed now or in the works," said Braziel. In the past year to 18 months, Bentek found that domestic drilling has shifted "dramatically" into the North American liquids fairway, resulting in a boost to both inlet volumes and gallons/Mcf (GPM).
"More than 75% of incremental NGL production added over the past six months has been in the Texas inland region," Braziel said. "Rich gas plays in this region such as the Eagle Ford and the Texas side of the Granite Wash, plus associated gas from crude plays in the Anadarko and the Permian basins, are responsible for a majority of the growth."
All of this new NGL production will impact prices and disrupt regional market dynamics. "The important questions are when, how and by how much."
According to Bentek's Natural Gas Plant (NGP) Database, 45 different processing plant expansions, with total capacity of 6.9 Bcf/d, are being contemplated in various parts of the United States. Bentek's NGP Database collects information that the states require from gas plants to anticipate projections of ethane, propane, gas liquids, inlet volumes and GPM.
The NGP Database indicates that the proposed projects are concentrated in the shale plays that are hopping: the Marcellus, Bakken and Eagle Ford, senior NGL analyst Ben Macfarlane told NGI. "They are mostly in North Dakota, the Marcellus and in Texas."
A new addition to the database will be a project announced Tuesday by El Paso Midstream Group Inc. and private equity firm Kohlberg Kravis Roberts & Co., which are partnering on infrastructure build-out that would begin in the Marcellus and Eagle Ford shales (see related story).
According to Bentek's database, among the biggest processing projects already on the drawing table include some by Marcellus leader MarkWest Energy Partners LP, which is partnering with NiSource Gas Transmission & Storage to build a processing complex in Majorsville, WV (see Daily GPI, Sept. 28). MarkWest's combined NGL infrastructure in the Appalachian Basin eventually is forecast to total nearly 85,000 b/d of fractionation, storage and marketing capacity.
In Texas Enterprise Products Partners LP is leading the charge to build liquids capacity, Braziel said. Late last month the partnership launched its fourth fractionator at its Mont Belvieu, TX, complex, with nameplate capacity of 75,000 b/d (see Daily GPI, Dec. 1). Plans are under way by Enterprise to build a fifth unit by early 2012 to increase fractionation capacity at the complex to about 375,000 b/d. Last June Enterprise also launched infrastructure projects in South Texas to accommodate the Eagle Ford Shale (see Daily GPI, June 30).
However, even with the 45-plus processing projects in the pipe, the continued surge of shale gas volumes will demand even more infrastructure, according to Braziel. Because shale gas volumes don't appear to be slowing, the "big infrastructure question is, what happens to the ethane that has to be recovered out of the gas streams?"
Midstream operators want to move liquids where it's most needed -- and the biggest petrochemicals complex is centered in Pasadena, TX, southeast of Houston. MarkWest has a project [in the Marcellus] that would "take surplus ethane to the East Coast and put in on boats and take it to Mont Belvieu..." for processing, Braziel said.
Still more infrastructure is anticipated. "Somebody's got to spend money," he said. "Somebody's going to be doing something."
Until more NGL is absorbed by domestic markets or exported, "we think we are going to be bumping along the ragged edge of oversupply for the most part in the NGL market," said Braziel. "We've been calling that one for nearly two years now.
"Back when we were first looking at the economics of shales, we expected production to continue to increase no matter what happened," he said. "In the past two years, everyone has discovered that shales are real and the technology that has increased production is powerful...We won't see upward pressure on prices for a long, long time."
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