Upstream revenues from the sale of natural gas liquids (NGLs) got a nice boost from a spike in NGL prices in Q4 and NGL prices are expected to remain elevated this year (~40% to 50% of WTI). RJ issued a nice report on this topic this morning. Send me an email if you'd like to read the full report: dmsteffens@comcast.net
Note this morning (3/26) from Raymond James:
When we outline our macro views, one statistic that always jumps off the page is our expectation for +3 million bpd of total U.S. liquids production growth from 2017 to 2019 (we estimate this is ~20% above consensus). Interestingly, one frequent misunderstanding is that the growth is ''only'' ~75% crude oil. An underappreciated element of the story is the growth potential in U.S. natural gas liquids (NGLs) - the remaining ~25% of growth over the next two years. NGLs are often over-looked because they are 'not quite oil or gas. That said, they should be relevant to investors considering: North American + OPEC NGLs represent ~10% of global liquids; NGLs represent ~15-20% of U.S. E&P revenues; and NGLs are substitutable products for many oil/gas consumers.
Today's Stat addresses: 1) the drivers supporting our U.S. liquids supply growth forecast; 2) why we're bullish on U.S. NGL production growth; 3) why the massive supply growth expectations don't derail our bullish liquids price thesis; and 4) what stocks have exposure to this theme.
Conclusion: Expecting ~15%/~8% growth in NGLs in 2018/19. First, U.S. NGL production will ''piggyback'' off the production efficiency themes for oil/gas. Easing infrastructure constraints in many areas should allow U.S. NGL supply growth to continue relatively unabated (Permian, Marcellus/Utica, and SCOOP/STACK, among others). Third, both 2018 and 2019 should also be supported by strong gains in ethane recoveries to meet growing demand needs. We expect total U.S. NGL production to average just under ~4.3 million bpd in 2018, up ~15% Y/Y. In 2019, this will grow by another ~8% to just under ~4.7 million bpd.
Who benefits from this outlook?
♦ NGL production is a key component of our bullish stance on the embattled midstream space. Remarkable work has been completed or is underway to add processing, transportation, fractionation, and export capacity for NGLs (e.g., Permian, Rockies, and Marcellus/Utica pipeline takeaway; Permian, SCOOP/STACK, and Marcellus/Utica gas processing; U.S. northeast and Gulf Coast fractionation; and Gulf Coast export capacity).
♦ Another big benefactor of this theme is the E&P space. Outlined on the last page, we included the top 10 companies within our U.S. E&P coverage universe ranked by 2019 NGL production as a percentage of total production. Although we are refraining from making any stock-specific calls at this time, the column on 2018 and 2019 Y/Y growth rates in NGL production growth show which producers have the most leverage to this theme.