As natural gas plant liquids (NGPL) are sourced from gas production streams or in association with crude oil production, future NGPL production largely depends on the price differential between oil and natural gas. EIA analysts anticipate a significant rise in liquid fuel production beyond 2017.
Revenues associated from extracting NGPL streams, such as ethane, propane, butane, and natural gasoline, justify the cost of producing shale gas plays with NGPL-rich resources. Hence, production of NGPL is forecast to increase from 3.3 million b/d last year to 4.8 million b/d in 2025, and then more slowly through 2040, reaching 5.0 million b/d as growth in wet natural gas production slows.
“When the price ratio between crude oil and natural gas is high, a producer is more likely to develop higher NGPL recovery formations because they can overcome the higher cost of processing these resources.
“When the spread is narrow, a producer is likely to avoid these costs and focus on developing natural gas production areas with low or no NGPL,” analysts at the US Energy Information Administration (EIA) said.
AEO2016 side cases also analyse the effects of variable oil prices and higher or lower resource and technology assumptions. By 2030, the Brent crude oil spot price averages $49 per barrel in the Low Oil Price case, $104/bbl in the Reference case, and $207/bbl in the High Oil Price case. Dependent on technological advances and price fluctuations, recovery rates can vary by up to 50% to the upside or downside, in relation to the EIA’s reference case.
Wildcat drillers react to oil/gas spreads
The surge in US shale gas production, together with several mild winters, resulted in Henry Hub gas prices from $6.33/million Btu in January 2010 to $2.23/million Btu in January 2016. The increasing spread between spot natural gas prices and Brent crude oil prices, on which NGPL prices are largely based, spurred producers to explore for and develop natural gas resources that yield a higher share of NGPL.
Once crude oil prices started falling in late 2014, the premium commanded by NGPL over dry gas diminished, so producers shifted away from areas with high liquids yield to resources offering higher quantities of pipeline-ready natural gas at the lowest net production cost.
The rise of gas liquids production in the US has spurred substantial investment in the domestic petrochemical industry as well as in facilities to export NGPL.