NGLs Analytics and Insight: Rebalancing NGLs in an Unconventional North America

Premise for a Study of North American Natural Gas Liquids

We are on the threshold of a wave of new natural gas liquids (NGLs) supply that offers potentially significant opportunities for all participants along the NGLs value chain, from producers to end users, as well as investors. However, the enormous potential of these new NGLs supplies is accompanied by a number of challenges to companies interested in fully realizing the benefits afforded by these new NGLs-related business opportunities.

• Growth prospects for shale gas and NGLs production. North American NGLs production is poised to increase sharply in conjunction with expected rapid growth in gas production, particularly from shale gas and tight oil formations.
• Diversity in shale gas liquids composition. As the principal contributors to the growth in NGLs supplies, shale gas plays prove to have surprisingly diverse compositions. Within certain shale plays there can be a fine line between significant volumes of associated gas liquids and relatively "dry" gas.
• Expected benefit from NGLs for shale gas economics. The market value of associated gas liquids generally provides an economic benefit and increases the viability of shale gas project economics, especially in low gas price environments.
• Impact of excess supply availability. In an environment of ample NGLs supplies, finding markets to absorb the associated gas liquids may be a challenge, as traditional end uses become saturated, increasing the likelihood that gas liquids prices could become depressed.
• Challenges to realizing full shale gas potential. In some shale gas plays, such as the Marcellus, gas located in some of the wetter portions of the play may not be produced because either the facilities to extract and transport the liquids are inadequate or local market demand is insufficient to support NGLs development.

There is diversity of wet gas within shale plays

Purpose Of The Study

Recognizing the many NGLs-related opportunities, issues and challenges affecting the potential for future shale gas development, IHS is undertaking a study to engage all segments in the North American NGLs supply chain (including gas production, fractionation, transportation and end uses).

The study will:

• Define the current landscape of conventional gas, shale gas and tight oil plays and their related NGLs supply, demand and price trends
• Identify the critical issues affecting the development of shale gas as they pertain to every segment of the NGLs supply chain
• Prepare a comprehensive outlook (a Planning Case scenario) for NGLs supply, demand and price for each gas liquids product in every region for all major shale gas plays in North America
• Extending beyond the normal outlook for NGLs markets, this study will also examine the impact of uncertainty on the robustness of the North American NGLs outlook by preparing two fully quantified alternative scenarios covering all study elements

Why IHS? A Unique Approach

IHS will utilize its broad industry experience and expertise in the North American natural gas and oil markets, leveraging the capabilities of CERA flagship advisory services to deliver a comprehensive assessment of US and Canadian NGLs markets. The gas liquids production outlooks in this study will be enriched by detailed resource data from the IHS Production Database as well as using IHS analytical tools to develop a rigorous NGLs production outlook.

The approach will draw upon the extensive capabilities of IHS to produce fully integrated scenario-based outlooks, incorporating sophisticated regional and macroeconomic outlooks and the detailed petrochemicals manufacturing and market analysis.

IHS is a global leader in scenario analysis, utilizing our deep knowledge base across the energy and macroeconomic spectrum to develop integrated outlooks for each component of the energy sector while ensuring full consistency across all sectors and regions. We will use our well-established techniques to develop a comprehensive Planning Case scenario outlook for North American NGLs in Phase 1. In Phase 2 of this study we will prepare two alternative scenarios to evaluate the impact of key uncertainties on the outlook—thereby providing insight on the future that will enable stakeholders in the NGLs supply chain to make strategic decisions regarding the future of the industry.

IHS Expertise Contributes To This Study

Energy Strategy: As the leading advisor to international energy companies, governments, financial institutions and technology providers, IHS delivers critical knowledge and independent analysis on energy markets, geopolitics, industry trends and strategy.

Country & Industry Forecasting: We provide the most comprehensive economic, financial and political coverage available from any source to support planning and decision making. Using a unique combination of expertise, models, data, and software within a common analytical framework, IHS covers over 200 countries and more than 170 industries.

Chemical Insight (formerly SRI Consulting): IHS offers leading business research for the global chemical industry, publishing reports and client-sponsored research. We are the preeminent source for in-depth business and process analysis in this space.

Scope of Work and Deliverables

This study will focus on North American (United States and Canada) refinery and NGLs field production, demand and price-providing annual outlooks to 2030, with ten years of history*.

The study deliverables will include:

Field and Refinery Production

• Historical NGLs production, broken down by state (United States) and province (Canada).
• Regional detail for major conventional and shale gas production, with specific play-level (e.g., Marcellus, Eagle Ford, Haynesville, etc.) detail for shale gas and NGLs production.
• Breakdown of production and liquids composition within selected plays, such as Marcellus (e.g., southwest Pennsylvania, northeast Pennsylvania and New York).
• Gas composition details for specific shale plays, including:
  • ratio of total liquids volume per thousand cubic feet (Mcf) of gas production (barrels per Mcf)
  • breakdown (weight percent) of NGLs production by type (ethane, propane, butane, etc.)
  • NGLs production details for both conventional gas and shale gas
• Gas liquids production from refineries (using projections for refinery capacity, configuration and utilization)
• Gas liquids supply outlook, to be based on outlooks of conventional and shale gas production and oil production, including tight oil and refinery production prepared by the CERA North American Gas and Global Oil research teams 

Fractionation and Transportation

• Projections of liquids fractionation capacity (i.e., fractionation plant breakdown of NGLs into individual component products: ethane, propane, butane, etc.)
• Transportation and logistics network for the major shale gas and tight oil plays, to illustrate the routes and capacities of existing and new pipelines and other modes of moving NGLs to end markets, including wet gas pipelines, NGLs pipelines, waterborne and other transportation modes (includes rationalization of the many current proposals)
• Determination of the specific pipelines and other transportation capacity required to deliver gas liquids to end use markets; this depends on the comparative cost of alternatives, including transportation, production and processing for marginal supplies relative to the delivered cost of local supplies (including economic rationalization of the many current proposals)

Demand

• Demand analysis, comprising a breakdown of NGL products by type (ethane, propane, butane, etc.) and end use, including petrochemical feedstock, heating and cooking, industrial process heat, agricultural and transport uses
  • Principal demand emphasis on petrochemical feedstock use of NGLs-gas liquids account for more than 50 percent of current US gas liquids demand (~100 percent of ethane, 50 percent of propane)
• Demand for NGLs by region, based on availability, price and transportation linkages-to provide projections of demand by end-use sector (petrochemical feedstock, process heat, agricultural, heating and cooking) and region; for production-demand balances, NGLs production by play will be aggregated to match US and Canadian demand regions-United States by PADD**, Canada by Province
• The background analysis underlying the petrochemcial demand for natural gas liquids will rely on petrochemical (i.e., steam cracking) feedstock economics—i.e. comparative economics of ethane versus propane versus naphtha and gasoil feedstocks. The overall analysis of North American petrochemicals production, for both domestic and export markets, will be integrated with global petrochemicals market and trade balances from the IHS SRIC World Petrochemicals Service. (While the details of the petrochemicals product production, demand and trade forecasts are not included in the project deliverables, the underlying analysis ensures the integrity of the US and Canadian NGLs feedstock demand forecasts.)
• Implications for NGLs trade-includes an assessment of North American NGLs imports and exports based on market developments in other principal global markets
• Prices-NGLs price outlooks for Mont Belvieu, as well as estimates for prices at selected major shale gas plays***

* For the purpose of this study, NGLs include ethane, propane, and butanes (butane and iso-butane) and exclude pentanes and heavier liquids.
**PADD—Petroleum Administration for Defense District (US Department of Energy regions)
***Estimates of gas liquids prices at major plays will be based on pricing at principal markets (e.g., Mont Belvieu) and on the price of natural gas at regional hubs.

Framework For The Study

Phase 1-Analytics

Defining the new NGLs Landscape: The Planning Case Scenario

• Historical and Planning Case scenario outlook of NGLs production-demand balances by component product and region (play-level production aggregated to region)
• Historical and Planning Case NGLs price outlook by product type (basis Mont Belvieu, plus selected major shale gas plays)
  
• Historical and Planning Case price outlooks for Henry Hub natural gas, West Texas Intermediate (WTI) crude and US Gulf Coast naphtha (as a basis for competing fuels and feedstocks)
• Historical and Planning Case outlook of fractionation capacity by region

Phase 2-Insight

Alternative NGLs Scenarios

• In collaboration with advisory members of the study, we will develop two scenarios to assess the potential implications of uncertainty on NGLs production, demand and prices that could potentially arise from a set of alternative assumptions for the North American NGLs market
• We will develop an understanding of the implications of future critical issues–the whats and the what-ifs–associated with risks to NGLs production and demand and how these could factor into the alternative scenarios
• Results will include full quantification of three distinct scenarios, a Planning Case and two other scenarios, which will include:
  • production and demand outlook for each NGL product type and play level
  • NGL price outlooks by scenario and product type (including Mont Belvieu basis, with estimates for other key price points)
  • price outlooks for Henry Hub natural gas, WTI crude and US Gulf Coast naphtha
  • fractionation capacity outlooks by scenario and region

Deliverables for Phase 1 and Phase 2 of the study include a PowerPoint report and accompanying Excel files containing all assumptions and outlooks. A workshop or webinar to review the results of the study will be held following delivery of the final reports for each phase.

Multiclient Study Team

Project Director

Research Director

Research Team

• Aaron F. Brady, IHS CERA Director, Global Oil
• Devanney, Principal Analyst IHS-SRIC
• Janet Ellettee, Consultant IHS CERA Consulting Practice
• William R. Finger, IHS CERA Senior Associate
• Gartner is the Senior Manager IHS
• Glenn Giacobbe, Senior Consultant - World Petrochemicals
• Russell G. Heinen, Vice President SRI Consulting (SRIC)
• Philippe Michelon, IHS CERA Managing Director
• Teddy Muhlfelder, IHS CERA Associate Director
• Surya Rajan, IHS CERA Director
• Curtis Smith, Director of IHS CERA Consulting
• Leta Smith, IHS CERA Director