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NGLs Week is PetroChem Wire's comprehensive summary of price trends, upstream and downstream costs, operations news and supply/demand forecasts. The report contains everything you'll need to understand what's happening in the NGL markets.

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Appalachia’s ethane supply/demand balance in major flux through 2021

HOUSTON, August 25, 2016 (PCW) -- This week, Shell announced it was building a 94-mile ethane pipeline (the Falcon system) that would transport some 100,000 b/d of ethane from production fields in Pennsylvania and West Virginia to its cracker in Beaver County, Pennsylvania. The 3.5 billion lbs/yr Shell cracker is expected to consume about 90,000 b/d of ethane, which constitutes about 50% of the current ethane demand from the region.

With not only the cracker, but more ethane takeaway capacity and waterborne exports expected over the next five to six years, it is interesting to look at what this prolific production region might be capable of during this time frame. Because of the lack of sufficient regional demand for ethane, supplies have moved to Canada, the Gulf Coast and Europe, making the region a major swing supplier for areas outside of its own. But with new demand on the horizon, how could this supply situation change?

Current estimates for next year’s Northeast ethane production range from 215,000-300,000 b/d and for the years thereafter, from 550,000-700,000 b/d**, a fivefold increase from existing levels (see graph below). Futures curves for natural gas and crude oil show improving prices during that time frame, which should fuel producers’ drilling programs.

Although there is always downside risk to these increases, it is worth noting that the overall NGL frac spread in the Marcellus Shale has been positive for more than two years now and the basin has always demonstrated the greatest uplift compared to other shale plays (see Frac Spreads, page 2).

Appalachia currently rejects a large amount of ethane (about 90,000 b/d, per the EIA, or nearly 50% of current ethane production levels), but this has occurred because of weak netbacks, insufficient takeaway capacity and localized consumption. Essentially, what producers are waiting for is the appearance of significant local demand in order to unlock the region’s copious amounts of ethane. -- Samantha Hartke

**estimates derived from various producers and EIA

Next week: what is Appalachian ethane demand currently and going forward?

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