By the OGJ Online Staff
HOUSTON, June 11 -- Natural gas supplies rose in the first quarter of this year but most of the increase did not come from producers, says financial analyst Marshall Adkins, who views the rise as temporary.
Lower demand and more supply has added 5-9 bcfd of gas to the market. But Adkins, the director of energy research for Raymond James & Associates, Houston, estimated about 1.5 bcfd of additional gas came from processors leaving liquids in the natural gas stream.
"This estimate is much higher than others might think; however, we believe that as liquids were left in the natural gas stream, not only did the volume of natural gas increase, but the gas that was going to end users had much higher btu content than normal," he said.
Processors typically extract natural gas liquids from the raw gas stream and sell them for a profit. But because of the gas price spike in November and December the profitability of stripping liquids from the gas and selling them separately ended up negative. Producers could make more money by not separating the NGLs because of the higher btu content of the gas.
As the fractionation spread fell, NGL production fell dramatically. In the first quarter of 2001, production was down 15% to 1.94 MMbtu/day million barrels from January 2000. Raymond James said this means a 340,000 b/d of NGL were left in the natural gas stream, providing end users higher btus.
Adkins said he used btu as the basis of his calculations because end users are charged according to heat value not volume. And because no energy was consumed stripping NGLs out of the gas, he estimated the amount of net liquids actually left in the gas stream amounted to 391,000 b/d.
In February, a combination of lower natural gas prices and higher NGL prices improved the fractionation spread "dramatically," he said. As a result NGL inventories were drawn down driving prices higher as production fell off.
"What we conclude is that a lack of NLG production, as seen in the first quarter, is most likely not sustainable for an extended period of time," he said.