American Oil and Gas Reporter - April 2018 - 82

VISION2020
USA Transforms Global NGL Picture
By Kristen Holmquist
HOUSTON-During the next five years,
U.S. natural gas liquids production appears
to be on pace to increase by 1.56 million
barrels a day, or 42 percent, as increased
drilling-particularly in the Permian Basin-
boosts U.S. oil and gas output. This production increase will challenge midstream
infrastructure, including raw mix (ygrade) NGL transportation, fractionation
capacity and export terminals. Some infrastructure projects already are under
way to handle these additional volumes
and prevent any problems with upstream
oil and gas operators.
Ethylene production capacity expansion
on the U.S. Gulf Coast is progressing
well and will absorb much of the market's
excess ethane that currently is being rejected. Exports of ethane from the Gulf
Coast and East Coast will continue to
absorb additional ethane supply.
A large amount of infrastructure investment is under way in the Permian to
handle the expected production growth.
Poten counts five pipeline projects, representing nearly 1 MMb/d of additional
outbound capacity from the Permian,
nearly all of which is headed toward
Mont Belvieu, Tx., the main hub for U.S.
NGL fractionation and storage.
Propane and butane project to add
minimal new U.S. demand in the next
several years, which will send an even

larger percentage of U.S. volumes overseas.
The United States currently exports half
its total propane and butane production,
and this percentage is forecast to increase
to 60 percent after 2020. International
demand growth from China, India, Indonesia and other Asian countries will
take the bulk of this additional material.
Current U.S. export terminal capacity
is sufficient to handle these additional
exports through 2020, but after that, additional investment will be necessary to
export the incremental production growth.
U.S. Production Growth
After growing at less than 1 percent a
year between 2000 and 2010, U.S. NGL
production surged between 2012 and
2014, increasing by more than 11 percent
a year. With the drilling slowdown that
followed the oil price collapse that began
in 2014, production growth slackened to
6 percent in 2016. Even at this slower
rate, however, the growth is still impressive,
especially during a time in which crude
oil production stalled (Figure 1).
U.S. NGL production is on pace to
grow 11 percent a year in 2018 and 2019
thanks to increased ethane recovery for
ethylene production projects and increased
domestic production of all NGLs, especially in the Permian Basin. Production
out of the Marcellus also is expected to
jump in 2018 following the expansion of
the Mariner East pipeline, which will

FIGURE 1
U.S. NGL Production Forecast
6.0

18%
16%

5.0

MMb/d

12%
10%

3.0

8%

2.0

6%
4%

1.0

2%

0.0

0%
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
U.S. NGL Production

82 THE AMERICAN OIL & GAS REPORTER

Growth Rate

Growth Rate (%)

14%

4.0

allow a boost from producers who may
have been holding back because of inadequate midstream infrastructure. The expansion of the pipeline will increase exports of ethane and liquefied petroleum
gas (propane and butanes) out of the
Marcus Hook terminal. Additional infrastructure build-out in the Marcellus is
expected in the coming years, with
pipelines coming on line to ship additional
raw mix to the Gulf Coast.
In the Permian, five raw mix expansions
and new-builds are planned with a takeaway capacity of roughly 950,000 bbl/d.
Associated fractionation capacity in Mont
Belvieu also is planned to handle the additional volumes. Much of this capacity
will not be fully utilized immediately as
with other pipeline projects, the expansions
are made to handle expected flows for
many years to come.
In the years following, Poten forecasts
growth will slow to an average of 4.5 percent a year as the rapid development in
the Permian and Marcellus plateaus. In
addition, ethylene production capacity
growth is forecast to slow starting in 2019,
limiting the growth in recovered ethane.
In this scenario, Permian production
is expected to increase about 15 percent
a year for the next three years. The
forecast potentially leaves some upside,
with a number of analysts predicting Permian NGL production will grow by as
much as 30 percent in 2018 alone. In this
case, 2018 U.S. NGL production growth
would increase another 131,000 bbl/d,
increasing total U.S. growth to about 15
percent or 540,000 bbl/d in 2018, compared with 11 percent in the base case.
Demand Up, Rejection Down
Historically, there were two uses for
ethane in the United States: petrochemical
production or rejection into the natural
gas stream. Ethane is rejected, or left in
the natural gas stream to be burned as
fuel, when the economics of recovering
the gas and sending it to the market are
unfavorable compared with the netback
of selling the ethane as natural gas. Prior
to 2011, ethane rejection was not widespread. Locally, in some markets where
ethane was not needed, it would be rejected; however, petrochemical plants
generally consumed nearly all recoverable



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