Over the past few years, midstream companies could not add fractionation capacity fast enough. Every plant in Mont Belvieu was being expanded, the northeast ramped up its fractionation capacity and plants in Western Canada sought to expand as well. During the five-year span between 2012 and 2016, more than 2 million barrels of capacity were added in the U.S. and Canada, bringing the total operational North American fractionation capacity to more than 8.5 million barrels. At the end of this wave of construction, we saw many proposed projects slow down and eventually stall out, with most going into a hold status.

Recently, we saw Energy Transfer Partners, L.P., through its subsidiary Lone Star NGL LLC, announce that it intends to proceed with its fifth train in Mont Belvieu, Texas. One has to wonder if this is a single “random” project moving forward, or is this the beginning of another cycle a fractionation capacity additions. Currently, there are two capacity addition projects under construction: MarkWest Energy’s 60,000-barrel-per-day (BBL/d) fractionator at its plant in Hopedale, Ohio, and Energy Transfer’s 30,000-BBL/d fractionator addition at its Marcus Hook facility in Pennsylvania. There are four projects that are still waiting to move forward in the next 12-18 months: Gulf Coast Fractionators LLC has a 45,000-BBL/d Train 3 addition project proposed in Mont Belvieu; Targa Resources has a 100,000-BBL/d Train 5 addition planned at its Cedar Bayou Fractionators plant in Mont Belvieu; Energy Transfer also has a Train 6 addition in the early stages, ready to go after Train 5 moves forward; and finally, in British Columbia, AltaGas is working on permitting for a 35,000-BBL/d fractionator at its Townsend plant to handle NGLs produced in the Montney Shale. Projects placed on hold last year include two additional trains at Mont Belvieu for Enterprise and the second train at Conoco’s Sweeny Refinery in Texas. If the trend of additional fractionation capacity is on its way, it is expected that these will be some of the next projects to move forward.

The additional fractionation appears to be necessary when the amount of proposed natural gas liquid (NGL) recovery capacity is considered. Looking at 2017, there are 5.9 billion cubic feet per day (Bcf/d) of cryogenic NGL recovery capacity proposed to begin construction in North America. This is slightly higher than the 5.2 Bcf/d currently scheduled to begin operations in the same year. The recovered NGL will need to be further processed or fractionated to be ready for downstream consumption or export.

Another thing to consider is that the gas-processing market has been in ethane-rejection mode since 2013. Ethane is the one natural gas liquid commodity that can be sold as natural gas, along with methane when ethane prices are extremely low. Full-ethane recovery rates will be reached by late 2018 at an estimated 600,000 BBL/d. This will increase gas-processing, profitability and the price difference between ethane in the Southwest vs Marcellus, which will launch additional ethane pipeline projects to get more ethane in from the Northeast. Gas plants in West Texas, South Texas and New Mexico regions will be swinging to full ethane-recovery mode over the next 18-24 months, and Y-grade NGL pipeline capacity will be a constraint by 2020, so we fully expect to see new pipeline projects announced in the Southwest Region in the coming year.

Both the domestic downstream demand for products, like ethane for ethylene and propane for polypropylene and propane dehydrogenation (PDH), as well as export markets, are expected to grow. We have seen the startup of new deep-water ethane export projects at Sonoco Logistics’ Marcus Hook, Pennsylvania, site and Enterprise’s Morgans Point site in Texas. New ethane demand is coming from with incremental expansions at LyondellBasell’s Corpus Christi, Texas, and at Dow’s Plaquemine, Louisiana, facilities, and now a wave of new ethane crackers, starting with Occidental’s Ingleside, Texas, project early next year. Ethane demand from these ethylene crackers, which are planned to be online by 2018, will be 400,000-500,000 BBL/d.

NGL exports continue to grow, having increased by nearly 50% over the past year due to the addition of recently-added new refrigeration export trains. As NGL production continues to increase, the additional refrigeration export trains added by EnLink, Targa and Occidental will be capable of handling supply excess through 2020.

We are seeing the NGL capacity additions on the supply and demand side, also potentially leading to new NGL pipeline development; the only segment in which we have not seen a lot of movement is the NGL fractionation segment. Midstream companies have been ensuring what was has recently been built is being fully utilized, but it seems that there may be room for growth in this market segment as long as the demand growth continues on the proposed path.

The Weekly Weekly NatGas Beacon is provided by IIR Energy. For more information, contact: iirteam@iirenergy.com (Ph: 713-980-1779)

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