NGLs Key to America’s Energy Resurgence

A recent report from the Brookings Institution describes natural gas liquids (NGLs) as a “critical component of the industrial sector’s ability to take advantage of the U.S. hydrocarbon resurgence.” After all, these NGLs – such as ethane, butane, and propane – are important feedstocks used by America’s manufacturing industry, used to make everything from shampoo to textiles.

According to the report:

“If the United States is to realize the full potential in its resurgence as a major hydrocarbon producer, NGLs will play a major role. NGLs production will have a direct impact on the competitiveness of U.S. manufacturers and petrochemical producers and play a significant role in any scenario of domestic self-sufficiency in hydrocarbon liquids.” (p.  12)

The good news is that the U.S. supply of NGLs is both abundant and widespread. Held in shale plays across the United States, NGLs make up a significant portion of U.S. energy production, and are increasingly being sourced from anywhere shale development is occurring. According to the Energy Information Administration (EIA), total domestic NGL production has increased by nearly a million barrels per day (mmbd) in less than a decade — from 1.7 mmbd in 2005 to nearly 2.5 mmbd in October 2012. In fact, America’s NGL supply now accounts for around 20 percent of the entire global NGL market (p.4). The following chart appears in the Brookings report:

The benefits of this affordable and American supply are already being realized, too. A 2012 report from Pricewaterhouse Coopers highlighted the significant advantages that increased domestic NGLs provides for America’s manufacturing base, most notably chemicals, which are used in an estimated 90 percent of all manufactured products.

As the supply continues to expand, companies around the world are increasingly choosing to relocate their facilities in the United States, where this abundant NGL supply is matched with affordable natural gas power generation. German chemical company BASF has invested more than $5.7 billion in North America over the last four years, and Phillips 66 — a newly formed spin off of ConocoPhillips — just announced plans to build a new fractionator south of Houston to take advantage of this newfound liquid production. According to E&E News (sub req’d):

“Petroleum output from the Eagle Ford, the Permian Basin, and other shale and tight oil and gas formations located near the Gulf Coast is expected to continue at high levels for decades, prompting companies to locate new petrochemical manufacturing capabilities to the region to take advantage of cheap and abundant feedstock…

“‘We see excellent market-facing opportunities to grow the natural gas liquids business, and the chance to supply purity NGLs and liquefied petroleum gas to the petrochemical industry and heating markets,’ said [Phillips 66] CEO Greg Garland in an email.”

Certainly exciting news for American manufacturers and consumers alike.

Yet, as Brookings warns, the need to keep up demand will be critical to this continued excitement. Just as infrastructure has been delayed for dry natural gas in the Northeast, pipeline and infrastructure delays (due in no small part to government bureaucracy and NIMBY activism) are limiting access to NGLs in the market. Increased pipeline capacity in the Marcellus and Utica regions, according to the study, will be key to continued development.

Of course, Brookings explains another key factor for continued growth:

“Exporting NGLs provide producers an incentive to maintain production of both NGLs and, in turn, dry natural gas. Further, many investors see exports as a critical component to smoothing the price volatility that characterizes the NGL market. more important than the current surge in investments in U.S. manufacturing is the assurance of a predictable supply of NGLs something provided by increase NGL export.” (p.14)

By providing infrastructure for both domestic projects and international exports, the United States will ensure the continued development of this important resource, while also continuing to grow the American economy.

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