The price of crude oil is so tightly woven into the economics of natural gas that if the ability to export crude is denied, the NGL market could eventually suffer a significant hit as well, an energy consulting service forecasts.

Maintaining the ban on exports will drive the price of a barrel of benchmark West Texas Intermediate oil below $80/bbl by 2020, applying particularly significant pressure on operations in the Niobrara Shale, Anadarko Basin and the Rockies.

The NGL market would experience a more substantial impact than crude on a percentage basis, predicts Bernadette Johnson, director, research and analytics at Denver-based Ponderosa Advisors LLC. That’s because most natural gas is produced as a byproduct of crude oil production.

“Since 2011, we’ve seen a steady increase in the percentage of gas coming from oily areas as gas producers have migrated from dry areas as a result of the low natural gas prices,” Johnson told attendees at the recent Platts NGLs Conference in Houston. “In 2011, the percentage was 53%; in 2020, we expect it to be 68%.”

The lighter crude produced in the major shale plays is no longer a natural fit for refiners, Johnson said. That’s because they spent billions retooling to handle heavier imported crudes from Mexico and Venezuela before the shale boom suddenly changed the rules of the game.

“If a refinery can take heavies, it can also take lights,” Johnson said, but the economics make it less palatable. “When you put light crude through a refinery, you get less high-value refined products. They will take your light crude, but they’ll give you a discount for it. Those discounts that I’m seeing on the Gulf Coast are $10.”

Johnson’s expectations for increasing oil production are:

  • Eagle Ford: From 1.5 MMbbl/d now to 3.9 MMbbl/d in 2020;
  • Permian Basin: From 1.7 MMbbl/d now to 2.9 MMbbl/d in 2020; and
  • Bakken: 1.2 MMbbl/d now to 1.8 MMbbl/d in 2020.

The cost of the ban to gas production by 2020 will be 4.7 Bcf/d; the cost to NGL production will be 300,000 bbl/d, in spite of significant structural demand coming online in the form of LNG facilities, GTL plants, methanol plants and fertilizer plants.

Exports will continue to rise for ethane and propane, but production for both will lag behind what could have been produced if crude oil had been allowed to be sold abroad.

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