NGLs analyst: Shale production impact phenomenal

Before Craig Whitley presented to the Propane Education & Research Council (PERC) on natural gas liquids (NGL) trends last month in Amelia Island, Fla., he thought about some of the things his mother taught him.

Like: Be careful what you wish for.

As in: Watching the propane-supply-challenged Northeast become awash in shale gas production, only to see multiple new takeaway options for propane and other NGLs destined to fill export and petrochemical markets.

Like: Never say never.

As in: Never become an NGL consultant and proclaim the United States as a permanent net importer of propane, only to see the nation become a net exporter of the product.

Like: What goes around comes around.

As in: “Don’t get too caught up in everything you hear and read because the laws of supply and demand will always come into play to correct the market,” says Whitley, the global NGL analytics team leader at BP.

Whitley recounted the dynamics that have dramatically repositioned the propane industry in today’s energy landscape. The shale gas revolution began to take shape in 2005 with the development of the Barnett play in north Texas, he notes. The Eagle Ford in Texas, the Bakken in North Dakota and the Marcellus and Utica plays in the Northeast also have become major NGL production sources.

As shale gas production began to grow, dry gas prices dropped and producers moved their rigs to more profitable wet plays, where they discovered increasing NGLs, including propane.

“The impact this had on total supply is nothing short of phenomenal,” Whitley says.

Gas plants produced about 2.5 million barrels of NGLs per day, including about 800,000 barrels of propane, in 2013, he notes. U.S. propane production from gas plants grew 139,000 barrels per day in 2013 from 2012 as a result of shale play sources, EIA data shows.

“The amount of new supply was basically a dream world for the U.S. propane market, but it happened so fast that those laws of supply and demand jumped in to rescue the situation and pushed the extra supply to price-sensitive markets,” such as exports and petrochemicals, Whitley says.

Enterprise Products Partners and Targa Resources have been big players in expanding their propane export capacity amid record highs approaching 390,000 barrels of NGLs per day (mostly propane, some butane) leaving U.S. shores. Whitley equates their shipments to roughly 493 million gallons moving out of our marketplace in one month, with Asia becoming a rapidly growing destination.

In addition, Houston-based PetroLogistics began operating the nation’s first propane dehydrogenation (PDH) plant in 2010 for on-purpose propylene production. Early last year, total petrochemical consumption topped 500,000 barrels of propane per day.

“The gist of the whole story is that the shale gas revolution has had a tremendous impact on the total amount of LPG production, typically propane,” Whitley says. “Waterborne LPG export terminals are being built to move supplies out of the U.S., while PDH plants are being built to consume propane supplies in the U.S. Those are the dynamics going on right now.”

No one can predict exactly how the propane supply and demand scenario will play out, Whitley says. What the veteran analyst can do, however, is lean on words of wisdom from someone close to him to best gauge market direction. Because, from past experiences, he knows nothing stays the same.

“Like Mom said, ‘What goes around comes around.’”

Deep freeze

The mild-mannered winter of 2011-12 seems like a distant memory compared to conditions this winter.

As we went to press, the central United States was experiencing sub-zero temperatures and wind chills that plummeted to minus 30 degrees and below in some areas.

In these times, it’s hard not to think about the difficult nature of the propane industry, whose employees weather these extreme conditions to keep customers warm and comfortable.