Top Appalachian producers foresee 2021 NGL price rally on thriving global demand

Some of the biggest U.S. oil and gas producers that saw higher NGL revenues during the fourth quarter of 2020 expect the recent rise in NGL prices to continue into 2021 as international demand for liquefied petroleum gas grows.

In the fourth quarter of 2020, Mont Belvieu NGL spot prices spiked from 49 cents per gallon to as much as 64 cents per gallon, exceeding the year-ago range of 43 cents per gallon to 53 cents per gallon. Despite its recovery from the second-quarter 2020 downturn, the Brent crude oil futures prompt month contract lagged behind NGL prices and ranged from $37/barrel to $52/b, a decrease from the prior-year range of $57/b to $68/b.

During the quarter, four of the 10 biggest oil and gas producers covered by S&P Global Market Intelligence recorded year-over-year increases in NGL prices, but the remaining six companies saw declines of 4% to 16%. While some producers posted year-over-year NGL revenue growth up to as high as 42%, the majority of the covered companies saw lower revenues compared to the year-ago quarter.

However, most of the top shale producers recorded increases in their NGL prices and revenues versus their third-quarter 2020 results.

Antero Resources Corp., the largest NGL producer in Appalachia and second-largest in the U.S., in its Feb. 18 conference call highlighted the need for increased LPG production amid continued growth in global demand for the product. Besides the adoption of LPG as a cleaner-burning fuel, new-build petrochemical projects coming online this year in Asia are also expected to pull up demand.

In late 2020, U.S. exports of LPG to meet international demand has caused propane inventory levels in the country to plummet and LPG prices in Mont Belvieu, Texas, to climb, Antero executives said.

"The result was that propane went from trading in the low 50 cents per gallon level in November [2020] to as high as 98 cents per gallon in January," said David Cannelongo, vice president of Antero's liquids marketing and transportation segment. "While ample U.S. export capacity has resulted in lower dock premiums to Mont Belvieu, the overall effect of a debottlenecked U.S. market on Antero has proved positive, resulting in stronger overall C3+ realizations as has been evident in our fourth-quarter results and 2021 estimates to date."

Antero in the fourth quarter of 2020 recorded NGL revenues of $364.4 million and an NGL price of $27.64/b, a 7% drop compared to the year-ago value but a 26% growth from the previous quarter. The corporation noted that as of its Feb. 18 call, its C3+ pricing has hit more than $39/b.

Appalachia's second-largest NGL producer, Range Resources Corp., also said it remains well-positioned to capture the improving NGL prices amid Europe and Asia's continued demand for LPG as the corporation moves more of its existing NGL production to the Marcus Hook terminal in Pennsylvania for export during the year.

"Starting in April, Range will access an additional 5,000 b/d of NGL transportation capacity on Mariner East, as we continue to expect near-term and long-term benefits of NGL exports out of the Northeast, with continued international demand growth for NGL products," Dennis Degner, Range's senior vice president and COO, said during the corporation's Feb. 24 conference call. Range anticipates being able to export more than 80% of its propane and butane during 2021.

Meanwhile, executives of fellow top Appalachian NGL producer Southwestern Energy Co. said they also anticipate the improved NGL prices to continue throughout the year. Southwestern Energy saw the highest year-over-year boost in fourth-quarter 2020 NGL prices at 23% and the second-largest yearly increase in NGL revenues at 29% among its peers.

Southwestern Energy projects its full-year 2021 NGL price realizations to be in the range of 30% to 38% of West Texas Intermediate prices, based on a WTI price of $50/b. Company executives during a fourth-quarter 2020 earnings call said they expect first-quarter realizations to hit the higher end of the range, between 36% to 42% of WTI prices.