Expanding NGL Markets Likely To Affect Producer Decisions

(September 16, 2019) — Expanding markets for natural gas liquids produced in the Appalachian Basin should provide an extra financial incentive for natural gas producers in the region to maintain robust production in the long term, although concerns over low gas and NGL prices continue to dominate short-term planning, writes S&P Global Platts.

The business intelligence provider finds that while gas production in the Northeast is not directly linked to NGL demand, the latter factor does impact producers’ break-evens on drilling. Low NGL prices will pressure well economics and may cause producers to look elsewhere for higher returns.

Demand for NGLs produced in association with natural gas production in the Appalachian Basin is expected to increase dramatically in the next several years. In the short term, the demand growth will come from NGL pipeline projects being built or expanded to take products such as ethane, propane, and butane to markets far removed from Appalachia. In the longer term, in-basin NGL demand is expected to be generated by the construction of large-scale manufacturing projects, such as the ethane cracker being built by Shell in Monaca, Pa.

Enterprise Products (Houston) has begun soliciting shipper interest in a proposed expansion of its ATEX pipeline that would move more supplies from the Appalachian Basin to its NGL complex in Mont Belvieu. The 1200-mile ATEX, or Appalachia-to-Texas, line transports ethane from the Marcellus and Utica shale plays in Pennsylvania, West Virginia, and Ohio to Enterprise’s Mont Belvieu NGL complex. Depending on demand, Enterprise would add up to 50,000 bbld of incremental capacity by 2022 through a combination of pipeline looping, hydraulic improvements, and modifications to existing infrastructure.

Another pipeline option to transport NGLs out of the Appalachian Basin is Energy Transfer Partners’ (Dallas) 350-mile Mariner East 2 pipeline. The line, which went into service late last year, has 345,000 bbld of capacity to carry a mixture of ethane, butane, pentane, and propane from the tristate gas-producing region to the Marcus Hook Industrial Complex and export facility in eastern Pennsylvania.

A second source of NGL demand, this time within the basin, is being created by the development of a petrochemical manufacturing industry in the region, identified by industry advocates as the Shale Crescent, the area surrounding the northern stretch of the Ohio River and comprising parts of Pennsylvania, West Virginia, and Ohio. The most advanced of these projects is the 1.5-million-metric-ton/year steam cracker Shell is building near Monaca. The plant, which will use ethane to manufacture polyethylene used in plastics manufacturing, is expected to cost up to $6 billion. In addition, a joint venture led by Thai-owned PTTGC America and South Korea’s Daelim is planning to construct a petrochemical complex in southeastern Ohio, though that project has yet to pass the final investment decision phase.

“We’re going to see a growth from natural gas liquids,” said Jerry James, co-founder of Shale Crescent USA, a group promoting the creation of a petchem industry in the region. James, who also serves as president of Artex Oil, an Ohio-based oil and gas producer, said demand for ethane should provide natural gas producers with the financial incentive to remove the NGL from the gas column as a way to produce another revenue stream.

Currently the choice to strip ethane out of the gas stream through processing or leave it in the stream through rejection is a “company-by-company decision,” he added. “A lot of companies have committed to the processing and they have to fulfill those contractual commitments.” However, with prices for ethane now relatively low, many Appalachian producers with the ability to do so are leaving ethane in the gas stream, he said.

S&P Global Platts notes that in recent months natural gas prices in the Northeast have been depressed, largely as a result of the strong production coming out of the Appalachian and Permian basins. However, Northeast prices have begun trending higher as the region moves out of summer and into shoulder season. Meanwhile, production has been at near-record levels.

August saw a glut of natural gas supply stay- ing within the Northeast as a result of a force majeure on the Texas Eastern Transmission pipeline, which has since been corrected. Further, several large Appalachian producers announced plans to cut back on drilling in response to the low-gas-price environment. This was not expected to have an immediate effect on production in the Appalachian Basin, which still continues to grow because production declines usually are not seen until several months after drillers have begun to cut back.

(SOURCE: The Weekly Propane Newsletter)