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Record Ethane Production Bodes Well for 2Q24 Earnings

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Ethane was the top commodity performer in the latest monthly data from the EIA, and by a mile. Higher ethane recovery predicted earlier by East Daley Analytics is showing up now in record production and some early state data, all good signs for several midstream names ahead of 2Q24 earnings.

The Energy Information Administration (EIA) reported production of NGLs hit an all-time high of 6,832 Mb/d in March ‘24, topping the prior record set in October ’23. The record month of production is unique to NGLs – crude oil and natural gas hit peak production in December ’23.Permian NGL Production

The M-o-M production gain of 191 Mb/d was driven by higher ethane recovery, accounting for 151 Mb/d (79%) of the increase from February ‘24. The Anadarko (PADD 2) and Northeast (PADD 1) also drove a combined 64 Mb/d of the M-o-M increase in NGLs. The biggest increase though came from the Texas Permian and Eagle Ford (Texas Inland of PADD 3) with 83 Mb/d of supply growth in March over the same period.

Additional ethane recovery from the Permian is not a surprise. As East Daley wrote about at the time, Waha gas prices plummeted in the spring on extremely tight gas pipeline egress. Low gas prices increase the fractionation spread to Mont Belvieu (Mont Belvieu – Waha) and have driven as much ethane recovery as processing plants can extract.

The wide frac spread has influenced projections in the Ethane Supply and Demand Forecast, prompting upward supply revisions in recent months. Yet the amount of ethane recovered surpassed what EDA initially anticipated, and we have revised the forecast upward slightly as a result.

While state data remains incomplete for some midstream companies, West Texas Gas (recently acquired by Energy Transfer (ET)) and Targa Resources (TRGP) own G&P systems that reported higher NGL production in the Permian from February to March ’24, corroborating what we have seen in EIA Texas Inland data.

Since most of the additional ethane is being recovered in the Permian, owners of NGL pipes out of the basin stand to benefit the most. Permian NGL pipeline utilization will exceed 90% and rise to as high as 95%+ in 3Q24, according to the NGL Hub Model. We expect companies like Enterprise Products (EPD), Phillips 66 (PSX), ET and TRGP will report strong (and in some cases record-high) throughput for the rest of 2024. High ethane recovery and record NGL production will persist until Matterhorn pipeline comes online and is fully operational by September ’24, per EDA estimates. —Rob Wilson, CFA Tickers: ET, TRGP, EPD, PSX.


Available Now: Ethane Supply & Demand Report and Data Set 

This a comprehensive data file and report that provides valuable insights into historical and forecasted supply and demand components for ethane. The report covers crucial metrics such as ethane supply from US gas processing plants, and demand from domestic ethylene steam crackers and ethane exports. Learn more about the Ethane Supply and Demand Report and Data Set.

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