The exploding supply of NGLs: can this stuff be called oil?

If The Oil Drum were still around, the contributors would certainly be talking about a new ESAI study.

The Boston-based consultancy put out a press release today, touting a new report it has produced that says by 2023, NGL production will account for more than one-quarter of the world’s liquids output.

To which the peak oil believers might say: exactly.

One argument often made by the peak oil school is that the rise in liquids output around the world does not eliminate any suggestion that oil production has peaked, because so much of what is coming out of the ground isn’t really oil. Instead, much of it is NGLs, which are far less versatile in what can be produced from them. Specifically, they have virtually no value in making distillates, the oil product most in demand in rising economies.

The full report is available for a cost. But in the announcement of its release, ESAI says its estimate is that the output of NGLs — which it defines as  NGLs/LPGs, ethane, condensate and naphtha — will hit 29.7 million b/d in 2023. Taking out ethane, which ESAI does not classify as a liquid, supply of those categories will be 26.2 million b/d out of total supply just over 100 million b/d.

“LPG and naphtha will account for one third of global oil demand growth between 2012 and 2023,” the ESAI announcement said. “Even though the transport fuels of gasoline, diesel, jet fuel and bunker fuel will consume the other two-thirds, it is clear that NGLs are a rising star in the oil patch. That demand, in turn, represents key changes in the petrochemical business as competition between feedstocks intensifies. LPG and particularly propane is the big winner. Of total petrochemical feedstock demand growth, LPG will capture 25 percent (up from 21 percent today), and ethane 27 percent. Naphtha will lose market share capturing 47 percent of the market, down from 50 percent.”

The irony is that in the US, the percentage of NGL/LPG output as a percentage of total field supply has declined slightly. According to EIA data, in 2008, total output averaged 6.784 million b/d; of that, 1.784 million b/d, or 26.2%, was NGL/LPG. In the agency’s most recent monthly report, for June, field production was 9.699 million b/d, and NGL/LPG output was 2.498 million b/d, for 25.7%.

But an increasing supply of natural gas from areas as diverse as the Middle East and Australia is pumping out a lot of NGLs along with that rise, and that’s adding to the percentage of NGLs in the total world liquids pool. You can see it in the price: NWE propane now runs about 60% of the price of Brent, and in 2008, it averaged close to 70%.

The question for the global market is whether innovation can take some way of making what could be a growing surplus of ultra-light petroleum products like NGLs or condensate and figure out a way to help them satisfy other petroleum demand. The rising supplies of these types of ultra-light petroleum feedstocks is great news for the petrochemical industry, particularly in the US, but it does take something off the ebullience of those proclaiming the end of peak oil. All barrels most certainly are not alike.

Platts