The influx of NGLs from the Northeast will increase dramatically during the next eight years as wet gas production from the Marcellus and Utica shales is expected to increase from some 15,000 barrels (bbl.) per day to 645,000 bbl. per day by 2020, according to Kristen Holmquist, manager of NGL analytics at Bentek Energy, speaking at the Marcellus Midstream conference.

Holmquist noted that this represents tremendous growth opportunities for the midstream industry as it will require additional processing and fractionation capacity because production is expected to remain in the Northeast.

In 2011, the Northeast reached an all-time low of inbound flows of gas from other regions. The basis differentials reached almost zero, which removed a great deal of the incentive for producers from other sections of the country to direct volumes to the Northeast. Consequently, Bentek anticipates production from the Marcellus and Utica will remain in the Northeast.

"For the rest of the country, the raw mix is heading down to Mont Belvieu to be fractionated, but the decision has been made to fractionate the raw mix from the Northeast locally," Holmquist said.

Yet, this decision presents challenges. "In the Northeast, ethane and propane demand are not expected to increase nearly as much as other supplies. Solutions will have to be created to handle these additional volumes," she said.

Rig counts have increased in the past two to three years from little more than 80 rigs to the current level of about 180 rigs. Even if the rig count decreases, production is expected to continue to increase and keep the Northeast well stocked in gas and liquids.

"It is important to consider that there are about 1,000 wells in the dry portion of the Marcellus that have not been completed because of a shortage of fracking crews, or there isn't enough take-away capacity. Now we're getting to the point where there might not be enough demand, but production could still increase even if the rig count were reduced," she said.

Liquids production out of the Marcellus and Utica shales will increase to nearly 6 Bcf per day by 2020, according to Bentek Energy data. The company currently forecasts processing capacity to reach about 3 Bcf per day by 2015, but processing bottlenecks are not expected due to the midstream industry's recent exemplary track record in avoiding these issues.

Although ethane volumes have garnered the most attention, Bentek anticipates that propane will actually have more issues as there isn't enough storage capacity to handle the added production.

Two years ago it looked like there was going to be a great deal more ethane production than could be consumed by the midstream, but the industry quickly responded with projects designed to build take-away capacity and an olefins cracker.

While Bentek's current forecast has excess ethane from the Marcellus from 2017 to 2020, Holmquist noted that these volumes were less than the capacity of several projects that have been announced for consideration. Although it is highly unlikely that all of these projects would be given the green light to proceed, it is expected that enough will be built to consume this excess ethane. "There is no longer an ethane problem in the Northeast. There have been sufficient solutions created to generate additional value," she said.

"However, propane production growth looks very similar to ethane production growth. We expect propane production to be about 180,000 bbl. per day by 2020, which matches current demand levels. But, demand is expected to shrink slightly. This will tax the Northeast storage system. By 2018 to 2020, you will need to see more storage and demand to consume this increased propane production," Holmquist said.

Consequently, access to other markets will be needed for propane producers. The two most likely are Europe via export and the Gulf Coast via pipeline similar to what has happened with ethane. It is also possible that the petrochemical industry could enter the region to make propylene, similar to what has been discussed with ethane crackers in the Northeast.

Comments