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Tuesday, July 16, 2013

Are Low Prices on Natural Gas Liquids Going to Present Next Major Challenge For Drillers?

From Energywire:
But the new alliances of pipelines, processors and producers are facing a glut of ethane and other NGL supplies, a Brookings Institution report noted in April. NGL prices have dropped to punishing lows, confronting the industry with a war of attrition for some years until new export and product markets are built up in the United States, Brookings analysts said.
"NGL supply will likely outweigh demand for much of the remainder of this decade, owing to the long lead times and high capital expenditure required to build petrochemical facilities," Brookings report authors Charles Ebinger and Govinda Avasarala said.
"It will definitely be a shootout," said Jeffrey Quigley, a senior analyst with Energy Ventures Analysis Inc. in the Rosslyn area of Arlington, Va. In time, cheap gas liquids should be a potent building block for U.S. manufacturers, petrochemicals producers, refiners and exporters. For now, a shakeout will test the richness of producers' Marcellus and Utica acreage, the agility of drillers, the balance sheets of midstream processors, and the competitive advantages of the markets that will receive the gas liquids, analysts say.
"Ethane isn't going to make a lot of money" in the near future, Quigley said. "Who is going to able to survive? Who gets acquired? Who does the acquiring?"
"Clearly, there will be winners and losers," said Kyle Cooper, managing director of research for IAF Advisors in Houston.
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