Shale-driven ethane price declines unlikely: Bentek report
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
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
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
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
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
--Samantha Santa Maria, Samantha_santa_maria@platts.com
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