Editor’s Note: This is one of a 14-piece series NGI undertook as the energy industry readied for the new year, with Lower 48 natural gas and oil supply continuing to surge in an uncertain environment as liquefied natural gas exports ramp up, Mexico markets remain shrouded and stakeholders demand more value. Get your complimentary copy of NGI’s 2020 Special Report today.

While U.S. natural gas liquids (NGL) production has slowed in 2019, volumes still remain near the record high of almost 5 million b/d, with growth of the byproducts expected to remain strong in 2020, even as natural gas and oil levels are forecast to increase at a more modest rate.

“It looks like NGL production is likely to continue to increase, and it’s being facilitated by the buildout of infrastructure by midstream companies,” said Michael Laitkep, an energy research analyst at Alerian.

Another factor likely to keep pushing up liquids volumes is oil-directed drilling in places like the Permian, Powder River and Williston basins, as well as the Eagle Ford Shale, Laitkep and others told NGI’s Shale Daily. Growth in associated gas volumes has elevated U.S. NGL inventories. Much of that growth has come in the Permian, which accounted for nearly 40% of the 15 Bcf/d of associated gas produced in 2018, according to the Energy Information Administration (EIA).

The EIA expects domestic natural gas production to average 95.1 Bcf/d in 2020, or about a 3% increase from 2019. That pales in comparison to high double-digit growth in some parts of the country in recent years and the 10% increase that occured between 2018 and 2019.

“In 2019, natural gas demand in the U.S. averaged only 6% higher than normal,” said Rob McBride, senior director of strategy and analytics at Enverus. “Add to that pipeline constraints and clear signals from operators they’re at a breaking point, and the writing on the wall becomes clear — we’re expecting a significant slowdown in the growth of U.S. natural gas production next year.”

Crude oil volumes are also expected to grow at a slower rate and increase year/year by just 0.9 million b/d to average 13.2 million b/d in 2020. But the EIA forecasts West Texas Intermediate prices to average $55.50/bbl. That has some firms, such as East Daley Capital Advisors Inc., forecasting stronger crude growth, especially if oversupply fears are exaggerated and the global economy continues to grow.

The firm expects U.S. crude production to grow by 7% year/year in 2020. In the Permian, it’s forecasting crude production to average 5.06 million b/d, or 0.71 million b/d more than in 2019.

In addition to oil-directed drilling, NGL growth is also expected to be aided by infrastructure projects that have entered service or will soon come online to move more liquids from the Permian to the Gulf Coast. By 1Q2020, the Shin Oak, Grand Prix and Epic pipelines are expected to add 1.1 million b/d of capacity. As a result, East Daley forecasts that year/year Permian NGL production alone will increase by 360,000 b/d.

Oneok Inc.’s 375,000 b/d Arbuckle II Pipeline, which would carry NGLs from Oklahoma to Mont Belvieu, is also expected to enter service by 1Q2020, while other systems are planned or have entered service farther north.

Another 2.2 million b/d of fractionation capacity that would serve the Mont Belvieu market is expected to come online by the end of 2022 and keep NGLs flowing.

“Everything we saw that caused wild price swings in NGLs in 2018, those are essentially being eliminated in the foreseeable future just because those swings were caused by infrastructure constraints more than anything,” said East Daley’s Director of Research Andy Ptacek.

Overall, EIA expects NGL production, or propane, butane and natural gasoline, to rise by 7% year/year in 2020. Ethane production is expected to increase by more than 17% on a variety of factors, including more petrochemical demand along the Gulf Coast. Others like East Daley see NGL production growing 11% year/year.

The Williston Basin could also factor into such growth. Operators in North Dakota, for example, have had few options for NGL outlets. Ptacek noted that Oneok has the only large y-grade pipeline in the basin, the 600-mile, 135,000 b/d Bakken NGL Pipeline. But the company’s Elk Creek Pipeline recently entered service to move NGLs from eastern Montana to facilities in the Midcontinent.

“That’s 180,000 b/d of NGL takeaway that’s coming online for a basin that’s been constrained for multiple quarters, and we expect a lot of volume growth out of there,” Ptacek told NGI’s Shale Daily.

In addition to production growth and more takeaway capacity, flaring targets in North Dakota have helped to expand gathering and processing infrastructure in the region. Ethane recovery in the basin could also grow as producers have largely rejected it into the gas stream given how far away demand centers are on the Gulf Coast.

That has pushed the heat content up on gas systems in the region, which are shared with Canadian flow-through volumes. Ptacek noted that there are concerns that dominant midstreamers in the region, such as Oneok, will raise tariffs and charge more for richer gas on systems like Northern Border, or limit heat values altogether, making ethane recovery more attractive.

“That’s going to force a lot of uneconomic ethane down to the Gulf Coast, starting with Oneok’s Elk Creek Pipeline,” he added.

Elsewhere in the country, some high-grading in the Appalachian Basin could occur if operators shift from dry to wet acreage as natural gas prices continue to stagnate. While liquids takeaway remains constrained in the Northeast, Enterprise Products Partners LP recently said it would move ahead with an expansion of its Appalachia-to-Texas ethane pipeline and the Mariner East system has gradually ramped up to help move NGLs overseas. Additional liquids production can also be expected from the Denver-Julesburg Basin in the Rockies, where oil and gas development has grown stronger in recent years.

While NGL prices recently rallied off lows seen in the third quarter, they’re likely to remain weak. NGLs are largely an intermediate product, heavily dependent on foreign buyers as domestic demand is expected to remain relatively flat. Ethane, for example, isn’t used for much and is taken primarily by the petrochemical industry to make plastics.

While petrochemical demand is expected to begin increasing next year, supplies are still forecast to outweigh demand. Producers meanwhile are “agnostic when it comes to NGLs,” Ptacek said, meaning they’re likely to continue producing them in their pursuit of oil if crude prices remain firm.

That likely means more downside for NGL prices next year.

“NGL prices have been lower this year as a result of increased production and elevated inventories, those are really two of the big drivers as to why prices fell,” Laitkep said. “While there has been some recovery, those prices remain weak as a result of continued high inventory levels.”