Regional natural gas liquids (NGL) differentials will collapse over the next two years as new NGL pipelines create excess takeaway capacity out of all major basins (except the Marcellus Shale) into Mont Belvieu, TX, according to analysts at Tudor, Pickering, Holt & Co. (TPH).
“With 600 million b/d of NGL pipe capacity out of the Midcon/Rockies, 400 million b/d out of the Permian, and 450 out of the Eagle Ford all coming online in 2013, NGL regional price differentials are on the endangered species list,” said TPH analysts.
New pipeline capacity will see nearly 100% utilization for several years after the 2013 startups, said THP analysts, who expect Conway, KS, prices to approximate Texas pricing at Mont Belvieu.
Over the past three years, NGL value over natural gas “shrunk as new processing and fractionation flooded out the previously NGL-short U.S. Gulf Coast,” TPH said. Drivers for midstream investment “are always price differentials, in one form or another (regional price diffs drive pipe investment, seasonal diffs drive storage investment, quality diffs drive investment in midstream services),” said the analysts.
“What happens when the pig moves through the boa constrictor (the midstream industry gets through this period of supernormal capex [capital expenditures])? The final frontier for the midstream is finding ways to move hydrocarbons to export markets. Beyond that, value creation becomes less dependent on organic growth and more dependent on industry consolidation,” TPH said.
Ethane rejection — seen last year in the Rockies and Midcontinent — could be “widespread” this year (see related story), and the Northeast could see gas production shut-ins as pipeline specification limits are tested, according to a recent midstream outlook prepared by U.S. Capital Advisors (see Daily GPI, Jan. 7). Abundant supplies of rich gas broke the back of NGL prices last year, and a market rebalancing is in order, according to U.S. Capital.
TPH and U.S. Capital agree that crude-by-rail’s popularity will continue as shippers seek more optionality to move product.
“Crude by rail allows volumes to bypass Cushing, while big pipes drain Midcon and reduce WTI [West Texas Intermediate crude oil] discount,” TPH said. “The previously unshakeable WTI discount is set for a wake-up call in 2013…persistent onshore discounts have driven infrastructure development to evacuate crude to the coasts. As a result, we’re seeing more than 3 million b/d of pipelines delivering crude into the Gulf Coast by 2015.”
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