New bottleneck due for North American hydrocarbon supply

Another hydrocarbon bottleneck is taking shape in North America.

Three large chokepoints now grab most attention, affecting bitumen in Alberta, natural gas in Appalachia, and oil and gas in the Permian basin.

In all three areas, production exceeds pipeline takeaway capacity.

Further down the logistical stream, capacity problems stimulate construction and expansion of oil-export terminals and gas-liquefaction plants (OGJ, Aug. 6, 2018, p. 52).

When production strains transport systems, oil and gas values suffer.

In May, for example, a Fraser Institute bulletin noted that in this year’s first quarter, the Western Canadian Select crude blend sold at an average discount to West Texas Intermediate crude of $26.30/bbl.

The study authors estimated the “natural spread” between those markers, based on quality differences and normal transportation costs, at $11.80/bbl.

The new bottleneck, less noticed but no less consequential for suppliers, affects LPG.

A recent webinar by ESAI Energy LLC said supply of exportable LPG will exceed terminal capacity this winter.

“The export constraint will temporarily cause scarcity in Asia and the international market, driving up LPG prices relative to naphtha and causing feedstock-switching in the petchem sector,” the consultancy said in a press release. “Meanwhile, stranded LPG in the US will push down LPG prices relative to ethane in the Gulf Coast, making propane a more attractive feedstock in that market.”

The reason, of course, is a surge in gas-liquids supplies in booming US shale plays.

Projects under construction and likely to be completed in the next 6 months will enable the US to export more than 1.2 million b/d of propane and butane, ESAI said.

“However, that will not be in time to ensure the uninterrupted flow of US LPG to overseas markets,” it added, noting that demand for US liquids will jump seasonally in the next couple of months.

Hence, another bottleneck. In periods of expanding supply, bottlenecks happen.

For now, indeed, transportation limits constitute the main brake on growth in North American output of fluid hydrocarbons.

(From the subscription area of www.ogj.com, posted Aug. 17, 2018; to comment, join the Commentary channel at www.ogj.com/oilandgascommunity)