Out in the Middle East, more than just Qatar is starting to feel the pinch of the US shale revolution. Saudi Arabia will find new competition for its liquefied petroleum gas (LPG) and other feedstock exports from U.S. exports of NGLs. The trend is likely to accelerate in the next few years, according to new studies. Tremendous market changes in petrochemical feedstock prices and trade flows are on the horizon due to the emerging tight oil play in the United States. The United States is poised to become a larger exporter of NGLs to Asia, with large ramifications for Middle East export refining and petrochemical businesses.
Natural gas liquids (NGLs) represented nearly half of “oil” liquids production from US shale formations in 2012, according to a new study. A new report from the Baker Institute by author Alan Troner concludes that NGL production could soon hit a near-term limit of how much condensate can be blended into localized light crude streams or shipped to Canada to facilitate oil sands shipments, leaving a possible “NGL hell” where price differentials could collapse significantly. Troner argues in his study that the growing U.S. NGL surplus, which might extend out at least to 2018, could become the ying to Asia’s demand yang, potentially changing the previously attractive economics of Saudi LPG exports and regional naphtha trading.
Energy Intelligence Group’s Barbara Shook agrees, noting in a recent presentation that ethane will be cheaper than naphtha for petrochemical manufacturing, prompting the announced construction of five new ethane crackers to be built on the US Gulf coast in the second half of this decade.
Just as the upstream potential of shale gas is bumping up against infrastructure constraints on natural gas exports, the US tight oil play may also be held back by the timing of key infrastructure development. Several companies have announced plans for new pipelines and condensate splitters but timing of their completion will be the key to whether surpluses can be absorbed in the U.S. market. One thing is for sure: already profitable midstream businesses are seeing an even larger renaissance. Companies like Kinder Morgan and Spectra Energy are cashing in on surging demand, and Wall Street is taking notice of soaring company capex.