U.S. NGL Output Set to Decrease 20% by End of 2021 from March’s All-Time High

The U.S. output of natural gas liquids (NGL), which reached an all-time high of 5.3 MMbbld as recently as March 2020, is poised for a sharp two-year decline, Rystad Energy’s (Oslo) base case view reveals. NGL production is forecast to fall to 4.4 MMbbld by the end of 2020 and reach its bottom, just below 4.2 MMbbld, a year later.
However, it appears that the Permian Basin will buck the trend and is forecast to make an impressive comeback by end-2021. Rystad believes it will match its basin-wide record from earlier this year of just above 2 MMbbld. Output from the rest of the U.S., though, is projected to shrink by about one third during the same time frame, generating an overall expected decline of 1.1 MMbbld in total NGL production in the country.

The Permian Basin has been the major driver of NGL production growth in recent years. This growth, stemming from a natural expansion of associated gas output, has also been bolstered by significant investments that have been made into NGL and processing capacity infrastructure.

“We do not expect to see a significant up-cycle in ethane fractionation spreads, as any optimism in the market in the short-term will be balanced out by ethane that is easily available in the existing rejection stream,” says Rystad Energy’s head of shale research, Artem Abramov. Reactivation of curtailments and the resilience of associated gas production in the Permian will provide continuous support to nationwide NGL output. Thus, the Gulf Coast basins are expected to respond quickly and eliminate the need for a substantial increase in NGL output from more remote regions, Abramov adds.

In the next few months, the consultancy believes that oil production curtailments and a collapse in nationwide fracking activity will make the deceleration in NGL output inevitable. But, approaching the end of 2021, the actual NGL output level will depend on the attractiveness of NGL extraction.

Permian NGL production is set to exhibit lower sensitivity than other basins, with an expected year-on-year decline of around 200,000 bbld in December 2020, according to the company’s base case scenario. NGL production in the Permian is also expected to rebound sharply in 2021.

In Rystad’s view, “a swift recovery of Permian associated gas and NGL production will put a stop to a sustainable increase in ethane recovery in the basins outside of the Gulf Coast. While substantial ethylene cracker capacity is still likely to be added in the U.S. in the medium-term, NGL-exposed producers should not expect attractive ethane prices on a prolonged basis in the future.”

SOURCE: The Weekly Propane Newsletter, June 25, 2020. Weekly Propane Newsletter subscribers receive all the latest posted and spot prices from major terminals and refineries around the U.S. delivered to inboxes every week. Receive a center spread of posted prices with hundreds of postings updated each week, along with market analysis, insightful commentary, and much more not found elsewhere.