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AnnualEnergyOutlook2016
FullReleaseDates:September15,2016|NextEarlyReleaseDate:January2017
ReportNumber:DOE/EIA0383(2016)

IssuesinFocus

HydrocarbonGasLiquidsProductionandRelatedIndustrialDevelopment
warrenwilczewski,billbrown
ReleaseDate:7/6/16

Hydrocarbongasliquids(HGL)areproducedatrefineriesfromcrudeoilandatnaturalgasprocessingplantsfromunprocessednatural
gas.From2010to2015,totalHGLproductionincreasedby42%.Naturalgasprocessingplantsaccountedforalltheincrease,with
recoverednaturalgasplantliquids(NGPL)lighthydrocarbongasessuchaspropanerisingby58%,from2.07millionbarrelsperday
(b/d)in2010to3.27millionb/din2015,whilerefineryoutputofHGLdeclinedby7%.TherapidincreaseinNGPLoutputwastheresult
ofrapidgrowthinnaturalgasproduction,asproductionshiftedtotightgasandshalegasresources,andasproducerstargeted
formationslikelytoyieldnaturalgaswithhighliquidscontent.
NGPL,containedintheunprocessednaturalgasstream,arerecoveredfromnaturalgasatgasprocessingplants,yieldingastreamof
liquidsthatisthenseparatedatfractionationplantsintoethane,propane,normalbutane,isobutane,andnaturalgasoline,aswellasdry
naturalgas(orresiduegas),whichismovedtomarkets.Onanenergycontentbasis,NGPLpriceshistoricallyhavebeenclosetothe
pricesofpetroleumproductsandaregenerallywellabovethepriceofnaturalgas.ThispremiumontherecoveredNGPLportionofthe
unprocessednaturalgasstreamgeneratesadditionalrevenuebeyondwhatisachievablefromthesaleofunprocessednaturalgasat
thedrynaturalgaspricesalone.
TheadditionalrevenuefromNGPLsalescanvarysignificantly,dependingontherelativepricesofNGPLandnaturalgas(FigureIF41).
NGPLpricesarelinkedtobothcrudeoilpricesandnaturalgasprices.In2002,2009,and2014,HenryHubspotnaturalgasprices
averagedbetween$4.33and$4.44permillionBritishthermalunits(Btu),whileNorthSeaBrentcrudeoilpricesaveraged$5.63per
millionBtu($32.33/barrel(b))in2002,$11.81permillionBtu($67.82/b)in2009,and$17.40permillionBtu($99.92/b)in2014(allprices
in2015dollars).

figuredata
Changesinindustrypractice,combinedwiththeincreasingpremiumgeneratedbytheNGPLcomponentoftheunprocessednaturalgas
streamrelativetodrynaturalgas,resultedinbothanincreasingshareofBtucomingfromNGPL,relativetodrynaturalgas,andrapid
growthinthevaluegeneratedbythoseliquids,relativetothedrynaturalgascomponentoftheunprocessednaturalgas.Consequently,
althoughtheNGPLcontributiontothetotalBtuvalueofnaturalgasproducedincreasedonlymarginally,from11.6%in2002to13.4%in
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2014,itscontributiontothetotalvalueofnaturalgasproducednearlydoubled,from15.1%in2002to26.7%in2014(FigureIF42).

figuredata
Naturalgasproductionfromtightandshalegasformationshasgrownrapidlyinrecentyears.From2010to2015,totalU.S.gross
withdrawals,thebroadestmeasureoftotalwellheadflows,increasedby23%,from73.5billioncubicfeetperday(Bcf/d)to90.1Bcf/d.
Thegeographyofnaturalgasproductionhasalsochangedoverthisperiod,withthenortheasternUnitedStates(previouslyanet
recipientoflargeamountsofnaturalgasfromtherestofthecountryandabroad)nowproducingmorenaturalgasthanituses.The
MarcellusFormation,whichunderliesmuchofWestVirginia,Pennsylvania,andotherstatesinthenorthernAppalachianregion,has
becomethemostprolificnaturalgasproducingformationinthecountry.ThepresenceoftheUticaFormation,whichoverlapsbutis
deeperthantheMarcellusFormation,bolstersproductionintheNortheastandimprovestheeconomicsforproducers,addingtotheir
returnoninvestment.
Changesaccompanyingtherapidshiftofnaturalgasproduction,bothgeographicallyandgeologically,haverequiredallsegmentsof
theoilandgasindustrytoadapt:producershavemovedpersonnelandequipmenttothelocationsofthenewresourcesmidstream
companieshavestartedbuildingadditionalnaturalgasprocessingandpipelinecapacityandconsumingindustriessuchaspower
producersandpetrochemicalshaveinvestedinnewplantsandrelatedinfrastructure.
Therecentsurgeinnaturalgasproduction,togetherwithseveralmildwintersthatlowernaturalgasdemand,resultedinadeclinein
U.S.naturalgasprices(asreportedattheHenryHubnaturalgastradinghub)from$6.33/millionBtuinJanuary2010to$2.23/millionBtu
inJanuary2016(2015dollars).TheincreasingspreadbetweenspotnaturalgaspricesandBrentcrudeoilprices,onwhichNGPL
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Keycharacteristics

U.S.EnergyInformationAdministrationEIAIndependentStatisticsandAnalysis

NiobraraFormation

JonahField

pricesarelargelybased,spurredproducerstoexploreforanddevelopnaturalgasresourcesthatyieldahighershareofNGPL.When
crudeoilpricesstartedfallinginlate2014,thepremiumcommandedbyNGPLoverdrynaturalgasdiminished,andproducersbeganto
shiftactivityoutofareaswithhighliquidsyieldtoresourcesyieldinghigherquantitiesofpipelinereadynaturalgasatthelowestnet
productioncost.

TableIF41.CompositionofoilandnaturalgasproducedfromtheNiobraraformationinColoradoandthe
JonahfieldinWyoming
Keycharacteristics

NiobraraFormation

JonahField

Crudeoil
Crudeoiltonaturalgas
(barrelspermillioncubicfeet)
Crudeoilheatcontent
(millionBtu/barrel)a
Wetnaturalgas
Heatcontent
(Btu/standardcubicfoot)b
Composition(percentoftotal)
Methane

86.4

9.5

5.570

4.980

1,350

1,215

76.2%

77.9%

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Ethane
Propane

13.7%
5.5%

8.7%
4.2%

Keycharacteristics

NiobraraFormation

JonahField

Butane
Pentane
Inertgases

2.6%
0.8%
1.2%

2.5%
3.2%
3.5%

a HeatcontentofoilbarrelcalculatedbyU.S.EnergyInformationAdministrationbasedonreportedAPIgravityand/orreported

compositionofcrudeoil.
b HeatcontentforNiobraraFormationisasreportedheatcontentforJonahfieldisestimatedbasedongascomposition.

ActivityintheRockyMountainsregion(PetroleumAdministrationforDefenseDistrict4[PADD4])illustratestheshiftfromdevelopmentof
drynaturalgasresourcestowetnaturalgasresourcesastheratioofcrudeoilpricestonaturalgaspricesincreases.Historically,
WyominghasaccountedformostofthenaturalgasproductioninPADD4.InJanuary2010,morethan7Bcf/dofnaturalgaswas
producedinWyoming,accountingfor56%ofthePADD4total.NaturalgasproducedinWyomingisgenerallyconsidereddry.TheU.S.
GeologicalSurveyhasreportedthatnaturalgasproducedfromcoalbedresourcesinthePowderRiverBasin,whichunderlieseastern
WyomingandMontana,containstraceamounts(0.005to0.97partspermillion)of[other]hydrocarbons(forexample,propane,
isobutane,butane,isopentane,andpentane)[1].Compositionoftheunprocessednaturalgasproducedfromtheconsiderablywetter
JonahfieldinwesternWyoming(TableIF41)includes16.4%hydrocarbons,andthegasproducedhasaheatcontentof1,215Btuper
standardcubicfoot(Btu/scf)wellabovetheheatcontentof1,010Btu/scffordrynaturalgasconsistingof100%methane.
UnprocessednaturalgasproducedfromtheNiobraraFormation[2],locatedpredominantlyinColorado,hasanevenhigherheatcontent
of1,350Btu/scfandanNGPLcontentof22.6%.Thenaturalgascomesoutofaleaseseparatoratthewellheadandrequiresfurther
processingtoremoveimpuritiesandtoseparateouttheNGPLbeforethedrynaturalgasissuitablefortransportviainterstatepipelines.
IntheNiobraraFormation,significantquantitiesofliquids,classifiedascrudeoil,alsoarerecoveredattheleaseseparator.Becauseof
thehighratioofcrudeoiltonaturalgasvolumesproducedfromtheNiobraraFormation,itisconsideredacrudeoilresource,andactivity
inthefieldisdeterminedmorebytheeconomicsofcrudeoilandNGPLthanbytheeconomicsofnaturalgas.
TheshiftofproductioninPADD4fromWyomingtoColoradosince2009reflectsabroadershiftofnaturalgasproductionfromdrytowet
resources,inpartbecauseofconsistentlyhighcrudeoilpricesfrom2011throughthethirdquarterof2014.Afterreachingmorethan7
Bcf/dinJanuary2010(56%ofPADD4production),naturalgasproductioninWyomingdeclinedby1.9Bcf/d(25%ofPADD4
production)to5.0Bcf/dinJanuary2016(46%ofPADD4production).NaturalgasproductioninColoradoincreasedfrom4.2Bcf/din
2010(33%ofPADD4production)to4.6Bcf/dinJanuary2016(42%ofPADD4naturalgasproduction),approachingtheproduction
levelsinWyoming.
ThefocusofproducersoncrudeoilresourcesandnaturalgasthatisrichinNGPLhasledtomoreproductionofliquidsinPADD4,even
asnaturalgasoutputhasdeclined(FigureIF43).FromJanuary2010toJanuary2016,PADD4productionofpropaneandbutanes
increasedby52%,from138thousandb/dto210thousandb/d[3],whilegrosswithdrawalsofnaturalgasdeclinedby13%,from12.7
Bcf/dinJanuary2010to10.9Bcf/dinJanuary2016.

figuredata
TheincreaseinPADD4propaneandbutanesproduction,atatimewhennaturalgasproductiongrowthisstagnantorfallingandwhen
crudeoilproductionisdeclining,mirrorstrendsinNGPLproductionnationwide.Eventhereductionofactivityinthewettestareasover
thepastyearorsohasnotslowedthegrowthofNGPLproduction,whichhasexceededthegrowthofdrynaturalgasproduction(Figure
IF44).

figuredata
ThegrowthofNGPLoutputsince201011hasoutpacedthegrowthofdomesticdemand.Theresultingmarketimbalancehasspurred
investmentinmidstreamanddownstreamcapacitytoprocess,transport,store,consume,andexportincreasingquantitiesofHGL.For
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example,projectseithercompletedsince2013orcurrentlyunderconstructionwillincreasethecapacitytoproduceethylenefromethane
by31%from29millionmetrictons(mmt)/yearto38millionmmt/year.Investmentsmadeinpropanedehydrogenation(PDH)capacity,
whichconvertspropanetopropylene)[4],haveincreasedtotalPDHcapacitymorethanthreefoldfrom0.66mmt/yearto2.16mmt/year.
U.S.capacitytoexportHGLalsohasundergonesignificantexpansionsince2013.Capacitytoshippropaneandbutaneoverseashas
grownbymorethan550%from0.2millionb/din2013to1.32millionb/din2017,andcapacityformarineexportsofethane,whichonly
fiveyearsagowerenotconsideredviable,haveincreasedfromzeroto0.28millionb/d[5].EIAestimatestotalinvestmentinthese
projectsatapproximately$33billion,andmoreprojectshavebeenproposedwithcompletiondatesin2018andbeyond[6].

NGPLproductioninAEO2016
ThefutureproductionprofileforNGPLwillbedeterminedtoalargeextentnotonlybythenaturalresourcesendowmentbutalsoby
productioneconomics,whichareinfluencedprimarilybynaturalgasandcrudeoilpricesandthespreadbetweentheirpricesonan
energyequivalentbasis.IntheAnnualEnergyOutlook2016(AEO2016),theHighOilandGasResourceandTechnologycaseandthe
LowOilandGasResourceandTechnologycase,aswellastheHighOilPricecaseandtheLowOilPricecase(FigureIF45),reflect
differentpossiblefuturesforU.S.NGPLproduction.TheHighandLowOilandGasResourceandTechnologycaseshaveamore
significanteffectonNGPLoutputbecauseofchangesinnaturalgasandcrudeoilproduction.IntheHighandLowOilPricecases,
productionlevelsareinfluencedbythechangesinvalueresultingfromincreasesordecreasesintheamountofNGPLcontainedinthe
unprocessednaturalgas.

figuredata

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Asinthe201014period,whenahighpremiumforliquidsledtoashiftinnaturalgasproductiontothoseareaswherenaturalgas
yieldedhighersharesofNGPLrelativetodrynaturalgas,theAEO2016resultssuggestvaryingratesofNGPLproductiongrowth,
dependingonrelativecrudeoilandnaturalgasprices.Untilcrudeoilpricesbegantheirsustaineddeclineinthefourthquarterof2014,
naturalgasproducersgenerallyhadchosenwetgasproductionoverdrynaturalgasproduction.Thatchoicerequiredsometradeoffs:
wetgasneedstobeprocessedbeforeitcanbeinjectedintointerstatenaturalgaspipelinesfordeliveryasdrynaturalgastoconsumers,
andwellsdrilledinformationsthatyieldwetnaturalgasgenerallyhavelowerinitialproductionrates.However,theextrarevenue
generatedbytheliquidscanimprovetheeconomicsofnaturalgasproductionandcreateanincentivetofocusdrillingonwetnaturalgas
resources.
IntheAEO2016Referencecase,withBrentcrudeoilpricesrisingfromanaverageof$37/bin2016to$136/bin2040(2015dollars),the
oiltogaspriceratio(2015dollars/millionBtu)increasesfrom2.5in2016to5.0in2040(FigureIF46).TotalU.S.NGPLproduction
increasesfrom3.5millionb/din2016to4.8millionb/din2025andtoalmost5millionb/dinthelate2030s.IntheLowOilPricecase,
withoilpricesremainingbelow$40/buntil2022andthenincreasingto$73/bin2040,NGPLproductionaveragesbetween4.3million
b/dand4.5millionb/dfrom2020to2040,evenasnaturalgasproductiongrowsfrom75Bcf/din2016to115Bcf/din2040.IntheHigh
OilPricecase,naturalgasproductionincreasesataslightlyhigherrate,to127Bcf/din2040,andNGPLproductionincreasesrapidlyto
5.0millionb/din2025andthenlevelsoffatabout5.2millionb/dfrom202540.TheadditionalrevenuefromNGPLsalesalsoshifts
productiontootherregionsofthecountry,resultinginadecreaseinPADD4naturalgasoutput,whereunprocessednaturalgasis
generallydrier,andanincreaseinproductionfromtheBakkenFormation(primarilyassociatedwithoilproduction)andpartsofthe
MarcellusFormation,centeredaroundwesternPennsylvaniaandtheWestVirginiapanhandle,wheretheunprocessednaturalgashas
arelativelyhighliquidscontent.

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figuredata

Downstreamdevelopment
Since2012,whenNGPLproductionstartedtoincrease,theU.S.industryhasrespondedwithanaggressivebuildoutofcapacityto
consumeorexporttheliquids.Operatorsofpetrochemicalcrackers(plantsdesignedtoconvertethane,propane,andnormalbutane,as
wellasnaphtha,toethylene,propylene,andotherbuildingblocksofthepetrochemicalindustry)announcedplanstoexpandtheir
facilitiestotakeadvantageoftherisingavailabilityoffeedstock,particularlyNGPL.InthefirstwaveofprojectsintheUnitedStatesfrom
2012to2015,anadditional300,000b/doffeedstockdemand,primarilyforethane,wasdevelopedthroughplantexpansionsand
restartsofmothballedfacilities.Inthesecondwavefrom2016to2018,largeestablishedpetrochemicalcompanies,includingDow
Chemical,ChevronPhillipsChemical,andExxonMobil,haveannouncedplansfornewlargescaleethylenecrackersandpropane
dehydrogenationfacilitiesthatwouldincreasedemandforethanefeedstockbyupto0.5millionb/dandforpropanefeedstockbyan
additional0.15millionb/dby2018.Inthethirdwavefrom2019onwards,afurther0.37millionb/dexpansionofethaneandpropane
feedstockdemandhasbeenproposed.Inaddition,midstreamcompaniesbroughtmorethan0.97millionb/dofpropaneandbutane
exportcapacityintoservicebytheendof2015,withanother0.2millionb/dofpropaneandbutanecapacityandnearly0.2millionb/dof
marineethaneexportcapacityslatedtocomeonlinebytheendof2018.
IntheAEO2016OilandGasResourceandTechnologycasesandOilPricecases,thesignificantcommitmentofcapitaltoprojectsinthe
firstandsecondwavesofpetrochemicalindustryexpansion,aswellasmostoftheexportcapacityexpansion,resultsincompletionof
theprojects.However,laterwavesofpetrochemicalprojects,aswellasanyfurtherexpansionofU.S.HGLexportcapacity,havedifferent
outcomesacrossthosecases.
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TheprimarymotivationforthebuildoutofU.S.industrialandexportHGLcapacityistheimpactofthewidepricespreadbetweenU.S.
naturalgaspricesandinternationalcrudeoilpricesonNGPLproduction,whichcreatesapriceadvantageforU.S.producersrelativeto
producersinothercountries.Assuch,anynarrowingofthepricespreadwouldreducethecompetitiveadvantageandreduce
opportunitiesforexportsofU.S.NGPLtointernationaldestinations,possiblytothepointofmakingexportsofspotcargoesunprofitable.
However,formanycountriesseekingtodiversifysourcesofsupplyforstrategicreasons,theUnitedStatesmaystillhaveanadvantage
inlongtermcontracts.Thepricespreadhasnarrowedrecently,andsponsorsofmajorpetrochemicalprojectsintheUnitedStateshave
announcedpostponementsofsomeinvestmentdecisions,pushedbackcompletiondates,andscaleddownthescopesofsome
projects.
IntheHighOilPricecase,U.S.naturalgasproducersareprojectedtotargetformationswiththehighestliquidscontent,resultingin
greatersupplyofNGPLtotheU.S.market.Inaddition,theHighOilPricecaseprovidesU.S.basedpetrochemicalplantswithacost
advantagerelativetotheirinternationalpeers,resultinginbetteropportunitiesforU.S.exportersininternationalmarkets.Withan
estimated$33billioninprojectsbetween2013and2017directlytiedtothegrowingavailabilityofHGLfeedstock,andbillionsmorein
associatedupstreamanddownstreamactivities,HGLrelatedeconomicactivityhasbecomeamajorfactorintheU.S.economy.
Dependingonfutureprices,developmentsintheU.S.petrochemicalindustrymayprovideeitherfurthergrowthinthissegmentofthe
U.S.economyoraslowdownfromrecenthighactivitylevels.

Endnotes
1.R.M.Flores,CoalbedMethaneinthePowderRiverBasin,WyomingandMontana:AnAssessmentoftheTertiaryUpper
CretaceousCoalbedMethaneTotalPetroleumSystem,Version1.0(Denver,CO:U.S.GeologicalSurvey,InformationServices,
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2004),p.14,http://pubs.usgs.gov/dds/dds069/dds069c/REPORTS/Chapter_2.pdf.
2.U.S.EnergyInformationAdministration,NiobraraRegionDrillingProductivityReport(Washington,DC:May2016),
http://www.eia.gov/petroleum/drilling/pdf/niobrara.pdf.
3.Ethane,anNGPLthatmayberecoveredorleftinpipelinenaturalgas,dependingongasprocessingeconomics,isnotincluded
inthetotal.
4.U.S.EnergyInformationAdministration,TodayinEnergy:GrowingU.S.HGLproductionspurspetrochemicalindustryinvestment
(Washington,DC:January29,2015),https://www.eia.gov/todayinenergy/detail.cfm?id=19771.
5.U.S.EnergyInformationAdministration,ShortTermOutlookforHydrocarbonGasLiquids,Appendix,pp.2122(Washington,
DC:March2016),http://www.eia.gov/forecasts/steo/special/supplements/2016/hgl/pdf/2016_sp_01.pdf.
6.BasedonpubliclyavailabledatafromcompanyannouncementsandSECfilings,EIAestimatesaverageinvestmentrequirements
of$2.8billionpermillionmetrictonsperyearofethylenecapacity,$2billionpermillionmetrictonsperyearofPDHcapacity,$0.2
billionper0.1millionbarrelsperdayofpropaneandbutaneexportcapacity,and$0.6billionper0.1millionbarrelsperdayof
marineethaneexportcapacity.

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