Growth in hydrocarbon production continues to impress the markets despite producer capital discipline. While U.S. producers have maintained strict capital control, production is still increasing at an extraordinary pace. For instance, Permian natural gas production has surged by ~3.5 Bcf/d from January 2023 through Q2 2024, with forecasts suggesting an additional increase of 9 Bcf/d through 2030, nearly all of which will be NGL-rich gas. Meanwhile, crude oil production has risen by ~0.4 million barrels per day in the same timeframe and is expected to grow another 1.3 million barrels per day through 2030. With increased drilling and increasing gas-to-oil ratios (GORs) from existing wells, this growth is expected to continue, supported by much needed addition of gas, NGL and crude pipeline capacity from the Permian. 

But what does this mean for NGLs, particularly Mont Belvieu fractionation complex’s ability to accommodate this influx of Y-grade NGL volumes not just from the prolific Permian but also from other NGL producing regions? What are the implications on spot T&F rates for fractionation?

The Mega-NGL pipeline buildout paves the way for Gulf Coast fractionation

Since the Permian shale boom began, U.S. Gulf Coast (“USGC”) operators have significantly expanded regional Y-grade pipeline takeaway capacity and also added NGL fractionation capacity at Mont Belvieu. The relentless rise in natural gas production continues to fill incremental pipe capacity additions from key NGL producing regions and downstream fractionation capacity at Mont Belvieu/Sweeny. For example, Permian Y-grade volumes are increasingly utilizing spare NGL pipeline capacity. As of Q2 2024, aggregate utilization of Permian NGL pipeline capacity was at 95%, but individual pipelines experienced varied utilization rates, ranging from 80% to well over 100%. If wet gas production growth maintains its current trajectory and/or if ethane demand increases, NGL Y-grade pipeline capacity could be fully utilized this year.

Pipeline companies have been anticipating this expected volume growth and have plans in place to add a whooping 1.4 Million bpd of greenfield and brownfield capacity by end of 2025.

Our analysis suggest that the capacity additions should clear the way for Permian NGL pipeline volumes to flow unobstructed to Mont Belvieu/Sweeny region for the foreseeable future. With a looming oversupply of NGL take-away capacity, NGL transportation value from the Permian basin will come under severe pressure –as pipeline companies try to attract limited Y-grade NGL barrels to fill pipeline space. 

Mont Belvieu/Sweeny Fractionation Capacity Outlook

On the fractionation side, the Mont Belvieu/Sweeny region fractionation capacity is highly utilized, with a reported utilization rate of 95% in Q2 2024. Similar to NGL pipelines, 590 MBPD of fractionation capacity additions are in the works, expected to come online in the next 12 months. Key expansions include Targa’s Cedar Bayou’s Unit 10 (+120 MBPD) which is near completion and OneOk’s Unit 6, which will add 125 MBPD capacity by 4Q 2024. These expansions will be critical in addressing the impending shortage of fractionation capacity and potential for volatile spot fractionation rates. In the following year, Enterprise’s Unit 14 is slated to begin service 2Q 2025 adding 195 MBPD, and Targa plans to add Unit 11 targeting 3Q 2026 in service adding another 150 MBPD of fractionation capacity.  Despite the aforementioned capacity additions, it appears that Mont Belvieu will hit a frac wall in 2028 unless expansions are announced in 2025.

Conclusion:

Historically, Mont Belvieu’s fractionation capacity expansions have prevented significant long-term capacity bottlenecks. As we move through 2024, capacity constraints are expected to persist, but relief is anticipated in 2025. Looking ahead, the next major threat to capacity constraints is projected for late 2027. However, individual fractionation facilities that have a robust upstream NGL value chain (from gas processing to NGL fractionation) may still face localized capacity issues in the near term. Effectively managing these risks will be crucial for optimizing operations and achieving favorable financial outcomes.

-Sue Neville

If you are interested in a deeper dive into Permian pipeline NGL takeaway and Mont Belvieu NGL fractionation outlook, please contact us at info@enkonenergy.com. We encourage you to subscribe to our articles to get weekly articles via email.

Enkon Energy Advisors is a boutique consulting firm specializing in oil & gas, and energy transition since 2012. We bring deep expertise in a range of markets including natural gas, NGLs, Oil, LNG, and Energy Transition where we provide commercial and market advisory to investors, energy companies, and project developers with consulting services, subscription reports, and analytics, with the goal of delivering commercially actionable outcomes to our client.