Download Moving Natural Gas Liquids to Prime Time

Moving Natural Gas Liquids to
Prime Time
May 13, 2013
By John Sodergreen, Energy Metro Desk
We’ve all been hearing about natural gas liquids
Prices for natural gas-correlated liquids like ethane, for
(NGLs) for years now. The “ ’thanes, ” as industry
example, or liquids more closely correlated to crude,
guru Rusty Braziel used to call them. You’ve heard the
have been pounded down pretty hard this year.
rumor: The shale revolution has given rise to a whole
bunch of potentially tasty new markets for traditional
natural-gas traders to eventually dominate… that is,
once the various supply gluts work themselves out.
Well, friends and neighbors, your wait for more liquid,
transparent markets in NGLs may be shorter than any
of us might have thought.
Our unscientific survey of what we found to be a
vast array of new NGL transport, shipping, general
infrastructure and processing now underway in the
key shale plays suggests to us that this market is
getting ready to pop.
Yeah, we know, so-called liquids-rich shale plays have
been all the rage for the past couple years, thanks to
overachieving well operators. But an overall lack of
In the former case, the term of art is ethane rejection.
Demand is so out of whack with production that
operators don’t even bother to pull the ‘thanes out of
the natural gas stream.
Just as aggressive shale production continues to put
downward pressure on natural gas prices, the same
thing happened in the natural-gas liquids space.
But, as we said, the huge investment in recent years
in new infrastructure to move the stuff to distant
markets is already beginning to matter.
Folks at Bentek and elsewhere tell us that they project
the natural gas-correlated NGLs (ethane mostly), to
tighten up a bit this year, and by 2014, we will likely see
a whole new ballgame.
transport and related infrastructure to process the
This being the case, we’re planning to run a whole new
stuff has basically ground the whole show to a halt.
series of stories on this evolving marketplace to keep
all you gas and oil guys abreast of changes that will
soon matter to you and your book.
1
We called industry analyst Kyle Cooper of IAF Advisors
“I hate to use the term, but all the shale plays, the wet
recently for his take on NGL market trajectories.
gas plays and so forth, have caused a truly massive
So, what do we have? First, we have a small, longestablished, somewhat insular old boy’s network of
traders and brokers who mostly control the space.
Sound familiar? We’re told the median age of this
closed group is “old.” Everybody knows everybody.
At the same time, we have swelling supply in almost
unlimited quantities, a big question mark around
global demand, and a couple well-known electronic
exchanges poised to launch these quasi-liquid markets
into the stratosphere.
paradigm shift. Crude production this week was like
7.369 BD/D – levels we’ve not seen since January
1992. And, it’s not slowing down with crude at $96.”
He says that, unlike the long-tailed LNG trains with
their huge investment needs, years-long building
schedules, and regulatory uncertainty, NGL
processing is far more manageable.
“Cheaper for sure. This is something we’ve done
for a long time (NGL fractionation) and now we’re
just ramping up the volume, we’re not starting from
scratch. You can’t name an LNG train that hasn’t been
“There is indeed a lot of growth here,” Cooper says,
a bit of a disappointment, either in terms of reliability
“a number of ethane crackers across the Gulf Coast
or rate.
are scheduled to expand in the near-term. But, at the
moment, financial volumes are miniscule in relation
to natural gas or crude, so, there isn’t a lot of interest
outside the market, beyond that good-old boys
network.”
This is changing, however, largely thanks to Chinese
demand and $4 natural gas.
“We send the plastic building blocks over there and
they basically send us back the happy meals,” Cooper
says. “There is such a huge cost advantage for the
U.S. plastics producers with $4 natural gas, compared
to $14 natural gas. They can now fill up their ships with
product going both ways.”
For Cooper’s taste, ethane and propane take up the
majority of his NGL coverage since they tend to track
fairly closely to the more liquid energy streams, like
gas and oil.
2
“Dow and DuPont, on the other hand, have ethane
cracking down pretty well. Significant growth and
significant areas of opportunity are ahead for NGLs,
fairly soon,” he says.
How soon exactly? He says there is a bit of a chickenand-egg issue with NGL financial trading.
Big funds don’t want to touch it right now because
they can only do 100 lots without moving the market,
“and 100 lots don’t move the needle for them. The
smaller firms may have a compelling story to tell about
the NGL trades, but, because volumes are low, they
can’t raise assets. And if they can’t raise assets, and
can’t begin to make markets, the big guys don’t want
to know them, and so, overall volumes don’t grow.”
He also says that the atmosphere is improving by the
week. He believes the market is close to having
“a critical mass of smaller guys slugging it out every
day,” such that the bigger folks are close to jumping in
and trading 1,000 lots, without moving the market.
“It’s building to this stage.”
John Sodergreen is Publisher and Editor-in-Chief at
Scudder Publishing Group LLC, which has been a
leading energy news and information company since
1997. For more information, go to the company’s online
news platform, EnergyMetro.com.
This information was obtained from sources believed to be reliable, but we do not guarantee its accuracy.
Neither the information nor any opinion expressed therein constitutes a solicitation of the purchase or sale of
any futures or options contracts.
3