Houston (Platts)--4Jan2011/435 pm EST/2135 GMT

Even as natural gas liquids production balloons in the US, sufficient new fractionation capacity and petrochemical demand will exist to prevent a significant decline in prices, particularly for ethane, a new Bentek Energy report says.

The Colorado-based firm Tuesday wrote that exponential NGL growth was because of shale drillers' rush to wet gas plays in an area it termed "The Liquids Fairway" that runs from the Eagle Ford shale in South Texas to the Bakken play in North Dakota.

NGL output from US natural gas plants hit a new record of 2.036 million b/d in September, according to Energy Information Administration data. More than 75% of the increase in NGLs from January 2009 was from the Texas inland region, which includes the Eagle Ford, Granite Wash, Anadarko and Permian plays, the report states.

Additionally, 67% of the new 884 drillings rigs now in operation are located within the Liquids Fairway.

This shift of production westward -- away from traditional fractionation facilities and petrochemical markets along the Gulf Coast -- has resulted in new midstream investments in pipelines and gas processing plants.

Some analysts have suggested the additional NGL volumes will lead to an oversupply situation, resulting in downward price pressure. That goes especially for ethane, which is the primary NGL being extracted on a per-barrel basis and relies completely on the petrochemicals sector in terms of demand.

But ethane's link to the price of crude oil, which has skyrocketed lately, has kept its price aloft. On Monday, Platts assessed ethane at 64.25 cents/gallon, above its 2010 average of 59.5 cents/gallon.

Bentek states there is about 2.5 million b/d of fractionation capacity at about 50 commercial units in the US, some 500,000 b/d above current gas plant production. "While this [500,000 b/d] capacity may not always be in the best location for incremental NGL volumes, it does provide a capacity cushion for some production," the report states.

The report notes about 400,000 b/d of new capacity is set to come online over the next three years: in the Northeast; at the Conway, Kansas, market hub; but primarily at the more liquid market of Mt. Belvieu, Texas.

Moreover, the petrochemicals sector's ability to run ethane is just above 950,000 b/d, while current production rates run about 850,000 b/d.

There also have been recent expansion plans announced to boost the sector's ability to absorb ramped-up volumes. CP Chem, for instance, is restarting a cracker unit in Sweeney, Texas, while Eastman Chemical has done the same to a light feedstock cracker in Longview, which has been down since late 2008.

Dow Chemical in early December said it would increase and improve its ethane cracking capabilities by as much as 30% within three years. Bayer AG, meanwhile, is reportedly looking for investors for an ethylene cracker in West Virginia.

Platts has learned that several companies have launched feasibility studies into new ethane storage facilities as well.

Bentek Energy is a subsidiary of Platts, which is a division of the McGraw-Hill Companies.

--Samantha Santa Maria, Samantha_santa_maria@platts.com

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