When waterborne exports of ethane began this year from the US East Coast, the tankers and terminals built to accommodate them betokened a broader trend that should steer energy-policy urges away from current headings. The outbound ethane is extracted from natural gas produced in the bountiful Marcellus and Utica shales of the Appalachian basin. That's the gas redrawing North American supply patterns and, in conjunction with production from unconventional resources farther west, supplanting coal in power generation, revitalizing chemical manufacture, and promising affordable fuel to other industries. The new gas production also is boosting supplies of gas liquids.
While production of crude oil from US shales is declining, gas-plant output of NGLs continues to rise. In its Short-Term Energy Outlook for Hydrocarbon Gas Liquids, the US Energy Information Administration projected output during 2015-17 will grow by 450,000 b/d. Of that, 66% will be ethane. According to the report, net ethane exports by the US will reach 250,000 b/d by the fourth quarter of 2017. Annual average net exports of natural gasoline, or plant condensate, in 2017 will be 220,000 b/d out of total production of 460,000 b/d. And net exports of propane and butanes (LPG) that year will average 160,000 b/d from output by gas plants of 1.87 million b/d. For the longer term, EIA's Annual Energy Outlook 2015 predicted increases in production of natural gas plant liquids from 2.14 million b/d in 2012 to 4.04 million b/d in 2020 and a peak of 4.19 million b/d in 2030.
Global NGL surge
Growth in NGL supply won't be confined to the US. A new study by Asia Pacific Energy Consulting, Houston, predicts NGL supply from gas plants worldwide will increase by 5.7 million b/d during 2014-21. In an article for Oil & Gas Journal, APEC Pres. Al Troner wrote that the NGL surge, coupled with growing supplies of light oil from tight formations, is creating a "light-ends space" in the oil market (OGJ, June 6, 2016, p. 26). The liquids increment APEC predicts represents 6% of current, worldwide oil supply. On that basis alone, it's significant to the market. But destinations and uses make it even more interesting.
Traded ethane and LPG go mainly to petrochemical manufacturers, which crack the gas liquids instead of naphtha where they can and when encouraged to do so by price differentials. Condensate not exported for use as a heavy-oil diluent is distilled in a splitter, blended with crude and refined, or cracked to make olefins. Distillation yields of most condensates are at least 50% naphtha. As with ethane and LPG, condensate cracking can displace naphtha.
These trends suggest more production of naphtha and less demand for the material in ethylene manufacture. They won't unfold evenly or predictably because arbitrage will disturb the motivating price relationships. Elements nevertheless are in place for a structural surplus of naphtha, the main nonchemical use for which is as an intermediate feedstock in the production of gasoline.
An overhang of naphtha supply fed by increasing gas production, if it develops like this, will lower the cost of an important gasoline component. It won't be large enough to disconnect the prices of gasoline and crude. But it might suppress gasoline prices in relation to other oil products within cycles still inscribed by movements in the crude price. It might, in other words, moderate the price of traditional automotive fuel while governments pursue visions of transportation powered by electricity from renewable energy. Especially with demand expanded by policy, that electricity won't be cheap.
Nonfossil-energy problems
Markets yield more surprises than fulfilled predictions. This observation partly explains why governments create problems when they dictate energy choices. It also provides reason to expect future events to stray from contemporary forecasts.
Oil and gas markets nevertheless are evolving in ways likely to aggravate chronic competitive problems of nonfossil energy. Energy policies that ignore these developments in deference to carbon avoidance are economically punishing and, therefore, politically doomed.
