NGL producers doubled revenues in Q4'21 as prices rose

Prices for natural gas liquids nearly doubled in the fourth quarter of 2021 compared to the same period in 2020, which also doubled their contribution to the revenues of most major U.S. NGL producers.

NGL prices stayed hot on the trail of rising crude oil prices, despite increases in volumes, as NGL demand increased inside and outside the U.S.

"We believe a constructive outlook for NGLs remains in place over the next few years after a 70% rally in 2021, as demand for purity products outpaces supply growth," CreditSights analysts Jake Leiby and Charles Johnston told clients Jan. 11.

Ethane demand is projected to grow by 15% in 2022 as more ethane crackers come online in the U.S. and producers fulfill export contracts, the analysts said, while Chinese petrochemical demand along with rising use of propane for heating and industrial purposes are expected to keep propane exports strong and domestic inventories low.

Ethane cracker demand

One of the largest new sources of demand in 2022 will be the startup of Shell Chemical Appalachia LLC's ethane cracker in Beaver County, Pa., outside Pittsburgh. America's largest NGL producer by revenue, Antero Resources Corp., is contracted to supply 30,000 barrels per day of ethane to feed the cracker's 1.6 million tonnes per year polyethylene output. Polyethylene is a building block for plastics.

David Cannelongo, Antero's vice president for liquids marketing and transportation, said NGL demand was relatively impervious to the omicron variant of COVID-19, which broke out in the quarter. Antero posted $644.5 million in NGL revenues in the fourth quarter, as Antero's realized NGL prices more than doubled on the strength of foreign sales. Realized prices will continue to rise in 2022 because of Antero's NGL pipeline and processing infrastructure, Cannelongo said.

Permian production

Marcellus and Utica shale NGL growth declined slightly in the fourth quarter while NGL volumes from the Permian Basin continued to grow as oil drilling resumed, Rystad Energy consultants said Feb. 3.

For shale oil producer EOG Resources Inc., the 130% increase in realized NGL prices and the 155% increase in NGL revenues compared to fourth-quarter 2020 are the result of keeping the liquids in the production stream, known as rejection, or stripping it out and selling the NGLs as separate products, known as recovery. EOG raised its guidance on NGL production 29% at midpoint in 2022, while saying it expected realized prices to soften.

"That's simply a function of the fact that we have opportunity to make an election as to how much we recover or reject going forward on several of our processing contracts — and with the strength of much of the NGL pricing, we're simply assuming we'll be in recovery mode more than rejection mode in several of those contracts this year," Executive Vice President and CFO Timothy Driggers told analysts on EOG's Feb. 25 earnings conference call.

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