Demand for NGL is moving into balance with supply in the U.S., which translates into good news for market pricing and great news for the energy industry-friendly Gulf Coast, Bradley Olsen, managing director for midstream research at Tudor, Pickering, Holt & Co., said at the Platts 4th Annual NGLs Conference in Houston.

“As it’s become increasingly challenging to build pipelines and infrastructure on the densely populated east and west coasts, you’ve really seen in the oil market, in the gas market and the NGL market what is effectively a continental-size funnel down to the Gulf Coast,” said Olsen, who serves on the Midstream Business advisory board. “Really, the Gulf Coast has proved over the past few years to be by far the most welcoming of infrastructure of any of the three coasts in North America.”

All about the pipes

That’s because Texas and Louisiana offer fewer regulations and a lower cost of construction than other regions. Moving NGL via pipelines makes the most economic sense and lines to the Gulf Coast already exist. Despite a plethora of announcements, other regions are moving slowly to catch up.

“While Keystone [XL] has taken a lot of attention in infrastructure and energy markets, the fact is we haven’t seen any major projects take root in Canada to the east or west coasts that relies on a long-haul pipeline,” Olsen said. “In the U.S., it’s basically the same story. We’ve yet to see a West Coast pipeline proposal fully committed. On the East Coast, we’ve seen some smaller-scale NGL export projects, but really, over 90% of pipelines are headed toward the Gulf Coast. The extension projects of the pipelines we’ve seen built have only enhanced that general trend heading toward Texas and Louisiana to clear the market.”

Illustrating the trend is Kinder Morgan Energy Partners LP’s Cochin Reversal Project, which turned the Cochin Pipeline, formerly Canada’s main NGL outlet to the U.S. Midwest, into a 1,500-mile mover of condensate for diluents purposes from Kankakee County, Ill., to Fort Saskatchewan, Alberta. Canada turned its back on this propane export option because of persistently weak NGL prices. The result, Olsen noted, is 100,000 barrels per day (bbl/d) of announced NGL export projects on Canada’s West Coast.

“The challenge with the West Coast of Canada is that, very similar to California or New York or any of our densely populated coastal areas, there hasn’t been a lot of appetite in Canada, specifically on the British Columbia coast, to build much in the way of export infrastructure,” Olsen said.

The bigger NGL story, though, is the takeaway concern in the U.S. Northeast, despite major projects like Enterprise Product Partners LP’s 1,230-mile ATEX pipeline ($1.2 billion), Sunoco Logistics and MarkWest Liberty Midstream & Resources LLC’s Mariner West and Mariner East pipelines.

“Producers in the Northeast were really concerned about being shut in due to too much ethane content in their producing wells, so their first concern was to dispose of it and basically, figure out a way to get rid of all that excess ethane,” Olsen said. “As a result, they signed up for some robust—on the midstream side of things, but if you’re a producer you just call them expensive—projects to get ethane out of the market.”

In some cases, he said, 50% of revenues from ethane production are absorbed by the cost of the ethane pipelines. And while that takes care of ethane, producers are left with figuring out what to do with LPG, propane, butane, isobutane and natural gasoline. The region is almost to the point of overproducing local demand for propane and butane and confounded as what to do with the excess.

“Mariner East [which is designed to move product from the Marcellus Shale to the Marcus Hook, Pa., processing facility] is a 30,000 to 40,000 bbl/d propane solution, but when you’re talking about 400,000 bbl/d potentially, of propane and other NGLs getting produced, 40,000 bbl/d is just a drop in the bucket,” Olsen said.

But is there a satisfactory answer for the ethane issue? Never say never, Olsen told conference attendees, but “ethane in the Northeast will never be economic.”

“I know it sounds dramatic,” he continued, “but you’re looking at your marginal takeaway provided by a pipeline, ATEX, which is effectively a 15 cent per gallon takeaway solution that is equivalent on a gas BTU basis, of paying $2.25 per takeaway out of the Northeast. You’ll notice that that is far above and beyond any other transport costs to get gas out of the Northeast, so you have a much larger incentive to blend as much ethane into your gas stream as possible and avoid using an ethane-specific pipeline if you can avoid it.”

‘Big markets tend to get bigger’

Which leads back to the Gulf Coast, long a mighty magnet to attract the nation’s hydrocarbons. Cutting through the hype, Olsen’s team at Tudor, Pickering sees realistic proposals for chemical projects in the Northeast that total no more than 170,000 bbl/d.

“I think our count of chemical projects [between now and 2020] is much more conservative than other ones you see out there, but among the projects that have any likelihood of proceeding, we see about 1.2 million bbl/d of petrochemical demand on the Gulf Coast, almost all of which is ethane and propane,” he said. “The only question that’s left in our minds is whether we have enough engineering and construction resources here on the Gulf Coast to absorb all of this demand for new facilities.”

In addition to delivering warm fuzzies to Houston-area homeowners hoping for a jolt in property values, these projects have a global impact.

“The fact is, we’ve got $100 billion of announced Gulf Coast projects,” Olsen said. “I think the important point here is that, with all of these engineering and construction projects located in such a small radius, it gives me even more reason to be cautious or hesitant around what the potential is to build major chemical complexes outside the Gulf Coast. Because the fact is, I don’t really know—I don’t think anyone has a good idea—because we’ve never tried to build four LNG terminals next to five world-scale petrochemical plants in history anywhere. And so, what the Gulf Coast labor market, what the construction market is going to look like, is really anyone’s guess, but it’s going to be very competitive.”

For those trying to wrap their minds around the sheer size of the plans, consider Olsen’s mantra: “Big markets tend to get bigger.”

“Whether or not we see every chemical plant get built, we think the demand will be there in exports if not in chemicals,” he said. “There’s obviously a strong case to be made that the U.S. has a long-term cost advantage in NGL and we will be the market of choice for any incremental NGL-consuming petchem plant around the world.”