Austin, Texas (December 9, 2020) — Enverus, the leading energy SaaS and data analytics company, has released its latest FundamentalEdge report that explores the company’s current view of the oil, natural gas and natural gas liquids (NGL) markets.
“NGLs don’t always get the attention they deserve despite the fact that they form the building blocks of the modern petrochemicals industry and, consequently, many of the goods we use on a daily basis. What we are seeing with surging NGL production amid this year’s slump in oil and gas production should make people sit up and take notice,” says Jesse Mercer, senior director of Crude Market Analytics at Enverus.
“Over the past decade, the petrochemicals industry became accustomed to ever-growing supplies of low-cost NGLs from the United States. Ethane, in particular, was priced so cheaply that as much as 1 MMBbl/d was never converted to ethylene and instead burned as fuel at various points last year. Those levels of ethane rejection now seem like a distant memory. What is interesting about this year’s surging NGL production in the U.S. is just how much this is being driven by the desperate need to recover increasing amounts of ethane from places that were previously uneconomical to do so.”
Today’s FundamentalEdge report release follows a string of announcements and product offerings made by Enverus aimed at helping all segments of the industry manage a challenging energy market wrought with price drops and demand destruction tied to the COVID-19 pandemic. Members of the media can download a preview of the full report or contact Jon Haubert to schedule an interview with one of Enverus’ expert analysts.
Key takeaways from the report:
- Although crude oil and natural gas production in the United States remains below pre-pandemic levels, production of natural gas liquids (NGLs) is setting record highs. This increase in NGL production has happened despite much weaker upstream drilling and completion activity than witnessed at the start of 2020.
- Given lower oil and gas production since the beginning of the year, sharply reduced ethane rejection is the key driver behind the increase in overall NGL production. In April 2020, ethane rejection was in excess of 970 MBbl/d. In contrast, ethane rejection was estimated at just over 630 MBbl/d in October.
- The drop in ethane rejection was initially widespread, but after the initial shock of upstream production shut-ins, high levels of ethane rejection returned to the Appalachian and Williston basins. Ethane rejection, however, remains subdued in the Permian basin as well as in the Rockies and Midcontinent regions.
- The economics of recovering ethane in the Rockies and Midcontinent improved substantially starting in May, as demand from the petrochemical sector remained robust over much of Q2 and into mid-Q3. Hurricane-related impacts on steam cracker operations (such as power outages) and turnarounds have since tamped down domestic ethane demand and put downward pressure on ethane prices. Recently, higher natural gas prices have worked to chip away at the economic incentive to recover ethane in the Rockies.
- The weakening economic incentive to recover ethane in the Rockies and Midcontinent since late September is concerning. The outlook for gas plant ethane production given current commodity pricing (oil, gas, and NGLs) suggests a plateauing of production in the final weeks of 2020. Without further increases in upstream activity (drilling and completions) or additional increases in gas plant recovery rates, ethane production may slowly decline in 2021.
- Also, with hurricane season winding down, steam cracker operations are expected to return to normal in the coming weeks and to lift ethane demand out of the slump it has been in since Hurricane Laura. Incremental demand growth from upcoming capacity additions and the imminent start of the Orbit ethane export terminal are only going to increase near-term demand even further. Forward ethane prices, however, are not currently high enough to support increasing ethane recovery beyond current levels.
- Against this backdrop, it is important to note that higher natural gas prices have raised the threshold for ethane prices to clear if increased recovery rates are to happen. Given Enverus’ supply/demand outlook for both ethane and natural gas, Enverus sees upside potential for ethane prices heading into the early months of 2021, potentially extending through the end of the year.
Enverus is the leading energy SaaS company delivering highly-technical insights and predictive/prescriptive analytics that empower customers to make decisions that increase profit. Enverus’ innovative technologies drive production and investment strategies, enable best practices for energy and commodity trading and risk management, and reduce costs through automated processes across critical business functions. Enverus is a strategic partner to more than 6,000 customers in 50 countries. Enverus is a portfolio company of Genstar Capital. Learn more at Enverus.com.