|CS Take on Natural Gas Liquids (NGLs)|
Another Year of Strength in 2012
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NGL Market to Remain Tight Throughout 2012:In our view, the NGL
market will remain tight throughout 2012. We expect modest NGL supply
growth in 2012 supported by strong producer economics in the liquids-rich
plays. Demand should also keep pace with increasing supplies as crackers
continue to find ways to increase ethane cracking capabilities and exports
continue to ramp. As a result, inventories should remain relatively low
throughout 2012, in our view. Furthermore, we expect Mont Belvieu ethane
to continue to trade at an elevated premium due to limited transportation
capacity to the Gulf Coast.
2013 Will Be a Transition Year: The transportation bottleneck between
Conway and Mont Belvieu should be resolved by 2013 when a slew of new
NGL pipelines are scheduled to come on-line. This is leading some to fear
an ethane glut emerging in 2013. However, we believe that the market is
likely to soften, but not collapse. Further, we believe the market will again
tighten in 2014 as new steam cracker and export market demand
Long-Term Supply/Demand Outlook Remains Constructive:We believe
the NGL market will remain balanced over the long-term. The development
of the U.S. shales continues to provide the U.S. based petrochemical
industry with a low-cost, globally advantaged feedstock, whose use will be
maximized by the industry, in our view. Specifically, we expect additional
world-scale, ethane cracking facilities to be constructed in the U.S. over the
next 5 years.
Investment Climate for MLPs Remains Supportive: The investment
climate for MLPs remains supportive, in our view. Infrastructure remains
short in several of the key growth basins (Bakken, Niobrara, Marcellus) and
new plays continue to develop providing the MLPs with new investment
horizons (Utica, Uinta). Gathering, processing, fractionation and logistics
assets are likely to continue to perform well as drilling in the liquids-rich
plays remains supported by economic returns. Furthermore, processing
economics should remain healthy as we expect similar oil, NGL and gas
prices in 2012. Finally, we do expect project competition to heat up in 2012.
Growth basins and services are likely to draw additional competition, thus
lowering project returns (albeit at still healthy levels).
Top Picks to Play the NGL Market:DPM, EPD, NGLS, OKS and WES.