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decoupling drilling from normal market signals. The period from mid-2008 through 2010 saw many such arrangements, along with outright acquisitions. These were recorded in the EMD Energy Economics and Technology Committee report of March 2011, where the total of drill carries alone had climbed to $13.2 bil- lion. This influence has shrunken but not yet faded away. To this effect, the inventory of drilled but uncompleted wells adds to the ability to add supply at low incremental cost (Personal communication, Steve Thumb, Energy Ventures Analysis, Inc.). Ethane and Propane Price Aberration The collapse of NGL and propane prices is adding to upstream cash flow pressure even for wet gas plays. This was pointed out to me by Kyle Sawyer of Boardwalk Pipeline Partners, LP: ‘‘...ethane prices dropped below rejection levels last year, starting in Appalachia and the Rockies, moving to the Mid-Continent and finally to Mt. Belvieu over the last 2 months. Propane has moved downward significantly as well due to high inventories from last yearÕs Ônon-winterÕ and burgeoning production.’’ ‘‘The lower NGL prices are pressuring returns from the shift to the wet gas shale plays and could impact the amount of capital available for new wells, par- ticularly since a large number of exploration and production companies are running negative cash flows.’’ (Personal communication, January 30, 2013). The 2011–2012 split in price trajectories is captured in the Federal Energy Regulatory Commission (FERC) Market OversightÕs summary of NGL prices (Fig. 30). Rejection occurs when it is more costly to fractionate and transport ethane than to leave it in the gas stream. Both the ethane and propane oversupplies are transi- tory, with the timing depending on construction sched- ules of ethane crackers, NGL pipeline capacity, and on the market response to bargain propane and ethane prices. An implication of SawyerÕs comments is that upstream market participants attempting to understand current and future revenue streams will have to be knowledgeable about much more than ‘‘gas’’ and ‘‘oil,’’ to include ethane, propane, and butanes and the fun- damentals leading to their anomalous price depression. An informative web-based resource on natural gas processing economics is RBN Energy LLC (http:// www.rbnenergy.com/). They have tallied an increase of over 40% in fractionation capacity over the next few years—two-thirds of which will be in the Mont Belvieu, Texas, NGL hub region (as an example, see Postel 2013). Access to low-cost feedstock coming from expanding shale gas/liquids production is known in the chemical industry as the U.S. ‘‘ethane advantage’’ compared to facilities that use naphtha as a feedstock (e.g., Western Europe). Industry participants foresee this advantage persisting for as little as 5 years, for 10 years, for as long as shale gas remains prominent, or for as long as oil prices remain above $70/barrel. Despite the uncertainty, major investments to exploit USÕ globally competitive natural gas and NGL prices are proceeding apace in the industrial sector. Shift in Fundamentals of Industrial Gas Use The American Chemical Council (ACC 2013) issued a report in May which identified 97 projects announced by the chemical industry, amounting to a capital investment of $71.7 billion through 2020. Prior ACC studies examined impacts of more abundant natural gas on, not only chemicals, but also paper, plastics, and metals (e.g., iron and steel). A theoretical boost in ethane supply, which has subsequently begun, was also examined. The ACCÕs report is a strong indicator of directional trends, but it takes a sharp pencil and intimate familiarity with each project to vet the most likely candidates and their progress to key mile- stones. Energy Ventures Analysis, Inc. (EVA 2013) has examined announced projects in the power and industrial sectors. Rather than focus on jobs, capital spending, and industrial policies—the principal thrust of chemical industryÕs voice—EVAÕs objective is to gauge energy use. The companyÕs calculations are based on its vetting of announced projects and translating these into total gas requirements per year. Their results are shown in Figure 31. Among industrial demands, the chief components are pet- rochemicals (various substances plus methanol), fertilizer, and at the end of the decade, at least two (and possibly four) gigantic gas-to-liquids ‘‘trains’’ rated at 0.42 billion cf (11.9 million m3) per day each. A smaller segment is represented by expansion in the steel industry. (Steve Thumb and Jeffrey Quigley, personal communication, May 15, 2013). Underlying the chart shown on Figure 31, the tidal wave of growth in the industrial sector has been calculated to be about 3.6 billion cf (102 million m3) per day or 1.3 trillion cf (36.8 billion m3) per year, and possibly more. This is a topic that is dynamic American Association of Petroleum Geologists, Energy Minerals DivisionPDF Image | Unconventional Energy Resources
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