Natural gas liquids are a rising star in the oil patch

Worldwide production of natural gas liquids is soaring — fueled largely by the U.S. drilling boom — and that rapid rise will alter the global energy market for at least a decade, analysts say.

Global production of natural gas liquids will grow from more than 26 million barrels a day currently to nearly 30 million barrels a day by 2023, according to research firm ESAI Energy.  Natural gas liquids — such as ethane, propane and butane — are natural gas derivatives used as fuel and petrochemical feedstocks.

“It is clear that natural gas liquids are a rising star in the oil patch,” ESAI Energy wrote in an analysis Friday, noting that the growing abundance gives petrochemical companies more options for competitively priced fuels to use as feedstock.

In the last five years, U.S. production of natural gas liquids has increased from 500,000 barrels per day to more than 1.8 million barrels per day, as shale gas and tight oil exploration continues, according to a IHS report released earlier this week.

Domestic operators shifted their investments to focus on production of natural gas liquids market when the price of dry natural gas slumped in 2012. But the shift led to a glut by mid-2012 and prices plunged for certain natural gas liquids, such as propane. Propane prices fell from $2.86 per gallon at the beginning of 2012 to $2.37 by October. It currently trades at about $2.48, according to the U.S. Energy Information Administration.

The IHS report, America’s New Energy Future, also predicts a robust future for the natural gas liquids market, which has begun to recover after a difficult 2012.

About half of the global supply of these liquids will come from North America and the Middle East, including U.S. shale plays and several new natural gas developments in offshore Israel and other neighboring countries.

The Asia-Pacific region leads the demand for natural gas liquids, currently consuming about 40 percent of the world’s supply, ESAI Energy noted.