High Value of Liquids Drives U.S. Producers to Target Wet Natural Gas Resources


PHOTO (select to view enlarged photo)

Washington DC May 8, 2014; In recent years, high levels of natural gas production have pushed prices down. The Henry Hub spot price averaged $3.73 per million British thermal units (MMBtu) in 2013. In 2012, the average annual Henry Hub price was $2.75/MMBtu, which reduced profit margins for many natural gas producers. The relatively high value of natural gas liquids (NGL) has led producers to target wet gas. NGL prices have traditionally been linked to crude oil, resulting in a significant price premium over pipeline-quality dry natural gas. More recently, the natural gas plant liquids composite spot price (which approximates a value of NGL produced at natural gas processing plants) has hovered roughly halfway between West Texas Intermediate (WTI) crude oil and natural gas spot prices.


PHOTO (select to view enlarged photo)

The result of this liquids price premium is that wet natural gas production is increasing at a faster rate than dry natural gas production. Liquids extracted from wet natural gas at natural gas processing plants accounted for 5.2% of the volume of marketed production in 2013, up from a low of 4.5% in 2008. September 2013 represents the highest liquids share of monthly production on record, at 5.5%.

When wet natural gas first comes out of the ground, it contains both methane (which is the primary ingredient of natural gas) and NGL. NGL (ethane, propane, butanes, and natural gasoline) are a subset of hydrocarbon gas liquids (HGL) as they do not include olefins. Between 2008 and 2013, volumes of liquids produced from wet natural gas grew at an average of 7% annually, with increases concentrated in the Gulf Coast. Production in the Marcellus region is still relatively small, but is growing rapidly.

Increased liquids production has driven NGL prices down, particularly of ethane and propane. Ethane, which is currently priced below natural gas, is being left in the dry gas stream in large volumes by gas processors and sold as natural gas, a phenomenon known as ethane rejection. Were ethane production more economical for processors, ethane production volumes would be higher, and ethane would occupy a larger share of total NGL production. As new ethane-consuming petrochemical plants continue to become operational, and as ethane demand is supported by new export projects, ethane prices will rise, and production volumes will begin to grow. Estimates of ethane rejection volumes range between 200 and 400 Mbbl/d.


PHOTO (select to view enlarged photo)

Source: U.S. Energy Information Administration, Form EIA-816, Monthly Natural Gas Liquids Report
Note: Butanes represents combined normal butane and isobutane production.

Refineries also produce NGL, predominantly propane, but their rate of production growth has not been keeping pace with increases in production from the wet natural gas stream. Refinery production of finished products is closely tied to crude oil inputs, which have not increased in recent years. With production at natural gas processing plants growing and refinery production flat, refinery NGL has accounted for a progressively smaller share of total NGL production. In 2013, refinery output of NGL accounted for about 12% of total NGL production, down from 19% in 2008.


PHOTO (select to view enlarged photo)

Source: U.S. Energy Information Administration, Form EIA-816, Monthly Natural Gas Liquids Report; Form EIA-810, Monthly Refinery Report; Form EIA-815, Monthly Bulk Terminal and Blender Report
Note: Refinery production figures represent net production. Year-to-date daily volumes for 2013 are not shown as butane production exhibits strong seasonality. Figures exclude refinery olefins.

Principal contributor: Michael Kopalek

-->

Home | Buyers Guides By Make | New Car Buyers Guide | Used Car Super Search | Total New Car Costs | Car Reviews Truck Reviews
Automotive News | TACH-TV | Media Library | Discount Auto Parts

Copyright © 1996-2014 The Auto Channel. Contact Information, Credits, and Terms of Use. These following titles and media identification are Trademarks owned by The Auto Channel, LLC and have been in continuous use since 1987 : The Auto Channel, Auto Channel and TACH all have been in continuous use world wide since 1987, in Print, TV, Radio, Home Video, Newsletters, On-line, and other interactive media; all rights are reserved and infringement will be acted upon with force.

Privacy Statement | Size Does Matter | Media Kit | XML SITE MAP | Affiliates

Send your questions, comments, and suggestions to Editor-in-Chief@theautochannel.com.

Submit Company releases or Product News stories to submit@theautochannel.com.
Place copy in body of email, NO attachments please.

To report errors and other problems with this page, please use this form.

Link to this page: http://www.theautochannel.com/