While oversupply and pricing issues continue to be problematic, it is premature to write off natural gas liquids (NGL) with the prospect that increased U.S. natural gas exports would help bolster NGL trade, an equity research team at Wells Fargo Securities LLC said after meeting with two Houston-based NGL companies.
The analyst team, lead by Michael Blum, noted that six potential NGL projects emerged in March, and expected high levels of ethane rejection because oversupply and price may be overstated, according to Enterprise Products Partners LP (EDP) and Targa Resources Partners LP.
Blum’s “NGL Snapshot” cited the fact that exports are likely to be a leverage upward for NGLs as one of the “themes” the Wells Fargo team took from meetings March 20 with EDP and Targa management.
“For NGLs, management teams see LPG [liquid petroleum gas] exports (propane and butane) as the balancing factor,” Blum’s analysis said. “In addition, EPD and [Targa] have received inquiries regarding the feasibility of exporting ethane.”
In addition, the report pointed out that as U.S. crude oil production continues to grow, the United States is “fast becoming a global exporter of refined products.”
Contrary to previous projections of ethane rejection in the range of 150,000-250,000 b/d, EPD and Targa said there is no widespread rejection on their respective systems. They expect ethane to remain in oversupply, but also could experience some “modest price improvements.”
“As propane prices improve due to increased export capacity coming online, this should lift the ceiling price for ethane, potentially causing some increase in price.”
As part of their assessment, the Wells Fargo analysts listed six new NGL-related projects emerging last month, along with a handicapping of their potential feasibility.
As for NGL pricing, the report noted that average prices in January and February were 97 cents/gal. and 98 cents/gallon, respectively. Based on current Wells Fargo number crunching, the average prices over the full years 2013 and 2014 could be about 94 cents/gallon, moving down steadily to about 89 cents/gallon in 2017.
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