While two pipeline projects have been proposed to move natural gas liquids (NGL) out of the Northeast to the Gulf Coast, more capacity will be needed to keep the Marcellus/Utica Shale region from becoming overwhelmed with NGLs, a Williams executive said at Wells Fargo Securities’ recent Energy Fundamentals Forum in Houston.
In a note recapping the event, Wells Fargo said that by Williams’ calculations, an additional 300,000-450,000 b/d of NGL takeaway capacity will be needed to keep the Northeast market in balance as local demand for NGLs, especially propane, is expected to become saturated by the end of next year. That additional capacity estimate came after the two recently announced projects: Enterprise Products Partners Appalachia-Texas Express ethane pipeline (see Daily GPI, May 1, 2012), and Williams’ Bluegrass y-grade NGL pipeline (see Daily GPI, April 2).
“If adequate takeaway capacity is not constructed, Williams believes both propane and butane may need to be transported out of the region in the summer (when supply exceeds demand) and then transported back in the winter due to seasonality in demand and limited regional storage,” Wells Fargo analysts said in recapping a presentation by Williams’ Kelly Knopp, vice president of NGL and olefins marketing. “One caveat for Williams’ analysis is the pace of development in the Utica; if production does not ramp up as projected, then an additional pipeline will likely be unnecessary.”
According to Knopp, the Northeast market for propane could be saturated by the end of 2014, and butane pricing in the region could come under pressure without takeaway capacity solutions.
While domestic propane and butane production faces constraints at home, the commodities are increasingly attractive overseas, according to Scott Gray, editor of the Waterborne LPG Report, who also presented at the event. The U.S. share of global LPG (propane and butane) supplies is expected to increase from 6% in 2011 to more than 15% by late this year, according to Gray.
Enterprise began operation of its expanded LPG export facilities on the Houston Ship Channel last month (see Daily GPI, March 8). Targa Resources Partners LP has also been expanding capacity on the Ship Channel. Additionally, four other projects have been announced by various parties in Beaumont/Port Arthur, TX; Nederland, TX; and Corpus Christi, TX. And further, another seven projects in Corpus Christi, Brownsville, TX; Tampa, FL; and Newington, NH, are seen as possible.
“The growth in U.S. exports will be a function of both market share gains and overall growth in the global LPG market (primarily due to growing demand from India and China, and the expected start-up of new propane dehydrogenation facilities in Asia),” Wells Fargo said. “If global demand does not keep pace with the expected increase in LPG supply from U.S. expansions, global LPG pricing could decrease. Notably, many countries produce propane as a by-product and therefore have very low cost basis in the product.”
But currently there is a “significant global arbitrage opportunity for U.S. propane,” according to Gray’s presentation. Early this year U.S. propane was trading around $400 per metric ton compared with about $1,000 per metric ton in international markets such as the Far East, Europe and the Mediterranean. The butane spread is narrower, $800 per metric ton compared with $900 metric ton in international markets.
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