EIA: High value of liquids boosts wet gas production

Spurred by relatively high values of natural gas liquids (NGL), company interests have shifted from dry gas production to wet gas production, according to the US Energy Information Administration’s monthly gas liquids report.

Gas prices have stayed low in recent years due to increased supply. The Henry Hub spot price averaged $3.73/MMbtu in 2013 and $2.75/MMbtu in 2012, reducing profit margins for many gas producers. NGL prices, as being traditionally linked to crude oil, are set at a significant price premium over pipeline-quality dry gas. According to EIA data, more recently, the gas plant liquids composite spot price—which approximates a value of NGL produced at processing plants—has hovered roughly halfway between WTI crude oil and gas spot prices.

This liquids price premium has resulted in a faster growth rate of wet gas production compared with that of dry gas. Liquids extracted from wet gas at 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%.

“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,” EIA said.

However, “increased liquids production has driven NGL prices down, particularly of ethane and propane.”

Ethane rejection—a phenomenon where ethane, which is currently priced below gas, is left in the dry gas stream in large volumes by gas processors and sold as gas—is estimated to range 200,000-400,000 b/d in volume.

“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,” EIA said.

Refinery production of NGL, predominantly propane, remains largely flat due to its close tie to crude oil inputs, which have not increased in recent years. Hence, refinery NGL has accounted for a progressively smaller share of total NGL production, down from 19% in 2008 to 12% in 2013.

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