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Natural Gas Processing Keeping Pace With Production, Analysts Find

Analysts with Wells Fargo Securities LLC said natural gas processing capacity has been keeping pace with the significant growth of gas production in the United States, especially since the shale revolution.

In a note Tuesday, analysts David Tameron and Gordon Douthat said gas processing hasn't received a lot of attention, but that could be a good thing because it doesn't detract from a real issue: takeaway capacity.

"Significant gas production growth in the U.S. over the past five to six years has created a strong demand for large-scale and rapid gas infrastructure build-out -- pipelines, fractionators, and storage," Douthat and Tameron said. "Industry seems to pay significant attention to the pace of pipeline takeaway build-out in supply-crowded plays, which makes sense given that it drives gas differentials for different basins, and subsequently realizations."

The analysts said Wells Fargo "found that the average gas processing utilization rate over the last eight years has consistently been about 60-70%, suggesting neither a shortage nor an overbuild of processing capacity. Admittedly, the numbers may vary from region to region, but overall our takeaway is that gas processing can generally keep up with gas production growth.

"Unlike fractionators or pipelines, gas processing plants can be built on-site and can be tailor-made to the capacity requirements of a particular field or area. With this level of flexibility granted, it makes gas processing bottlenecks easier to digest for crowded supply regions, and also provides a faster matching of processing capacity with supply growth."

The analysts added that for the time being they are watching developments in pipeline takeaway capacity, which they called "a contributing factor in narrowing the differential for supply-crowded areas such as the Marcellus [Shale]."

A long list of proposed processing facilities has been announced recently, including Tuesday's announcement by Enterprise Products Partners LP that it plans to build a cryogenic natural gas liquids processing plant -- with an initial capacity of 200 MMcf/d -- in Eddy County, NM, in the Permian Basin's Delaware sub-basin (see Shale Daily, Sept. 30).

One week before Enterprise's announcement, Oneok Partners LP said it plans to invest $480-680 million between now and the end of 3Q2016 to build two processing facilities -- one in North Dakota and one in Wyoming (see Shale Daily, Sept. 23). Oneok opened its 100 MMcf/d Garden Creek II processing plant in the Williston Basin in August (see Shale Daily, Aug. 29).

Earlier in September, South Africa's Sasol Ltd. said it had been awarded a wetlands permit to build a gas-to-liquids plant in Louisiana (see Daily GPI, Sept. 5).

MarkWest Energy Partners LP placed five major infrastructure projects in the Appalachian Basin into service during 2Q2014. Those projects included two processing plants with 320 MMcf/d of capacity in the Marcellus and one 200 MMcf/d processing plant in the Utica Shale (see Shale Daily, Aug. 12). Last May, MarkWest said it would add another 400 MMcf/d of rich gas processing capacity by building two new cryogenic plants at existing facilities in West Virginia (see Shale Daily, May 7).

Canyon Midstream Partners LLC announced in June that it plans to add a 30 MMcf/d cryogenic turbo expansion train to its James Lake processing facility in Ector County, TX, effectively expanding its capacity from 70 MMcf/d to 100 MMcf/d (see Shale Daily, June 5).

Last May, Utica East Ohio -- a joint venture of Access Midstream Partners LP, M3 Midstream LLC and EV Energy Partners LP -- said it would increase its processing capacity to more than 1 Bcf/d (see Shale Daily, May 12).

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