For much of this year, the NGL market has been focused on new ethane cracker builds and expansions to work off the supply overhang created by increased shale production. For some time, the relief was expected to begin this fall, but several projects have experienced delays that pushed back their restart dates until the winter. According to Wells Fargo Securities, more projects could face delays due to a tight Gulf Coast job market.

The investment firm noted that with several large energy and industrial projects set to complete in the same 2016 to 2018 time frame and high demand for labor, cost overruns and delays are possible. “A number of large-scale petrochemical projects have already announced cost overruns, including Royal Dutch Shell [Plc]’s gas-to-liquids project in Louisiana, Chevron Phillips Chemical [Co.]’s Gulf Coast ethylene and polyethylene plants, and LyondellBasell’s Channelview, Corpus Christi and La Porte [Texas] expansions,” Wells Fargo Securities noted in its August NGL Snapshot.

In the case of Shell’s $20 billion GTL project, the company chose to cancel construction due to potential cost overruns. Chevron Phillips Chemical officials also announced that the costs for its proposed plants could be 20% over-budget at $6 billion, up from its proposed $5 billion, due to labor costs. In addition, LyondellBassel officials stated that the costs for its plants are now estimated to be 36% greater at $1.3 billion.

“According to Louisiana’s Workforce Commission, the Gulf Coast market will need 86,000 skilled workers to support the construction of $60 billion of projects planned through just 2016, alone. Companies may need to look for workers outside of the local market, in our view,” the report said, while noting that Industrial Info Resources Inc. anticipates 36,000 new workers will be needed for these new projects—with the unemployment rate in Texas and Louisiana at nearly 1% lower than the national average.

Currently, the investment firm is forecasting the possibility for the ethane market to rebalance by 2017 and be undersupplied by 2018, but if any crackers are delayed into 2019 then the market is likely to remain oversupplied in 2017 and 2018.

These projects represent the best chance for the overabundance of NGL supplies to be worked off since the bulk of NGL demand is driven by the petrochemical industry. The report stated that the petrochemical market represented 45% of NGL demand in the U.S. with the remaining demand coming from the heating and fuel markets at 15%, refiners at 17% and exports at 24%.

The correlation between lower NGL prices and petrochemical demand is visible in the nearly 8% decrease in demand on a year-on-year basis, which is tied to the downturn in cracking capacity. Wells Fargo Securities stated that petrochemical demand for NGL supplies was 1.43 million barrels per day (bbl/d) in July.

The report noted that according to data from the U.S. Energy Information Administration, the NGL market was oversupplied by a total of 78,000 bbl/d in May compared to being undersupplied by 79,000 bbl/d the prior year.

Much of this supply overhang was caused by the light NGL market. Ethane was oversupplied by 59,000 bbl/d in May compared to an undersupply of 2,000 bbl/d the previous year. Propane was oversupplied by 12,000 bbl/d compared to an undersupply of 136,000 bbl/d in May 2013.

“Unlike ethane consumption, which is driven almost entirely by the petrochemical industry, propane demand is driven by multiple factors, including the residential market for heating and cooking, petrochemical demand, commercial/industrial/agricultural and exports. The residential market primarily uses propane as a heating fuel and thus, experiences higher demand and prices during the heating season, which lasts from Oct. 1 through March 31,” the report said.

Heating demand could be down this coming winter as the National Oceanic and Atmospheric Administration (NOAA) forecast anticipates temperatures 10% warmer than last year’s frigid weather and 5% warmer than normal winter temperatures.

The good news for producers is that petrochemical demand was above the five-year average of 1.4 million bbl/d while ethane consumption rose by 10% in July from the previous year.