Executive Summary: Rigs: The total US rig count increased by 3 rigs W-o-W, up from 601 to 604 for the week of March 17. Flows: Interstate US gas samples dropped 0.1% W-o-W for the week of March 31. Infrastructure: The restart of Gulf Coast Fractionator (GCF) says a lot about the state of NGL markets and a fairly urgent need for more frac capacity, according to East Daley’s NGL Network Model. Purity Product: Cold weather in the US lifted propane prices domestically, narrowing the spread from Mont Belvieu to the Far East as more supply was burned for domestic use
Rigs:
The total US rig count increased by 3 rigs W-o-W, up from 601 to 604 for the week of March 17. The increase was driven by gains in smaller unidentified basins. In liquids-driven basins, producers in the Anadarko added 2 rigs, while the Permian and Uinta each lost 1 rig.
Anadarko operators Merit Energy and BCE-Mach III each added a rig W-o-W. In the Permian, operators such as Ovintiv, Chevron, EOG Resources, Permian Resources, Devon Energy, and Occidental Petroleum all moved rigs across the basin, ultimately leading to a net subtraction of 1 rig in the Delaware. Uinta Wax Operating dropped 1 rig W-o-W in the Uinta Basin.
Flows:
Interstate US gas samples dropped 0.1% W-o-W for the week of March 31.
Liquids-driven basins drove the decline on the week as flow samples dropped across most of the basins. The Eagle Ford gas sample fell 6.7% W-o-W, reversing gains from the prior week, mainly due to maintenance on Texas Eastern Transmission (TETCO) behind the Kinder Morgan (KMI) G&P system.
In the Powder River Basin, continued maintenance on the Western Midstream (WES) G&P system is impacting gas supply on Wyoming Interstate Company (WIC). The PRB gas sample should recover next week as maintenance was planned through March 26.
Flow samples in gas-weighted basins remain down W-o-W as producers like EQT in the Marcellus respond to gas prices below $2/MMBtu by shutting in some production.
Infrastructure:
The restart of Gulf Coast Fractionator (GCF) says a lot about the state of NGL markets and a fairly urgent need for more frac capacity, according to East Daley’s NGL Network Model.
Targa Resources (TRGP), EnLink Midstream (ENLC) and Phillips 66 (PSX) are partnering to bring the old unit back when needed the most. The companies have a 38.75%, 38.75% and 22.5% ownership interest in GCF, located in Mont Belvieu. The 135 Mb/d fractionator was shut down in 1H21 and has been idle since then. The owners are giving GCF a second life to help a market constrained by available fractionation capacity.
GCF is slated to become operational in 2Q24. The timing is optimal considering that, in the NGL Network Model, EDA estimates Gulf Coast fracs are operating at 100% utilization (see the circle of green-dashed line in figure below).
Help is on the way with additional fractionation expansions from TRGP (Trains 9 and 10), ONEOK (OKE; MB-6) and Enterprise Products (EPD; Frac 14). The problem with these projects is timing – they are newbuilds, and other than TRGP's Train 9 will not be available until 2025. The ability to restart an old frac is a valuable option when timing is of the essence.
The owners previously estimated capital costs of about $67MM to restart Gulf Coast Fractionator. Targa and ENLC have contributed $52.2MM through YE23, implying a total cost of $67MM. That sum would put expenses close to the initial estimate, assuming no significant spending in 1Q24.
Purity Product Spotlight:
Cold weather in the US lifted propane prices domestically, narrowing the spread from Mont Belvieu to the Far East as more supply was burned for domestic use. When the January cold snap subsided, the Far East to Mont Belvieu spread widened. Furthermore, weekly propane and propylene exports (a leading indicator of monthly c3 exports) recovered in February and March (see graph below). As a result, EDA expects LPG exports to fall only about 1% in 1Q24 vs 4Q23, despite a rough start to the quarter.