And Now It's Propane: A 2 Billion Barrel/Year Nuisance

For newbies: the Bakken is an oil play, not a natural gas play.

Bakken-centric companies talk about 93% of their production from the Bakken being oil (see corporate presentations of KOG, others).

When ONEOK came into the Bakken to set up natural gas gathering and processing plants, the economic value of natural gas in the Bakken was said to have been 3%. I remember that figure because "everyone" else had blown off the Bakken as an opportunity to make money on natural gas. But, as I noted then, 3% is a small number, but 3% of a really, really huge fossil fuel play cudda/wudda/shudda be huge. And apparently it is. What is ONEOK up to now? Five (5) natural gas processing plants?

With that as background, enjoy The Calgary Herald article Don sent me earlier this morning, gas liquids boom helps company file higher first-quarter profits:

It reported that U.S. propane production recently surpassed domestic demand, leading to the U.S. becoming a net exporter.

Growth in propane supply is expected to mainly come from the Marcellus shale gas play in the Northeastern U.S., with as much as 1.8 billion gallons of propane production per year by 2020, and the Bakken shale play in North Dakota, which could pump two billion gallons per year by 2020.

The article continues:

Cheaper propane is making inroads in gasoline, diesel and heating oil markets in the U.S., according to a report ...

....the report notes that the discount paid for U.S. benchmark propane versus gasoline increased from 37 cents US per gallon in 2010 to $1.12 in 2012.

“Propane prices are expected to remain very competitive with gasoline, diesel fuel and distillate fuel oil as propane supply continues to increase,” it notes, adding fuel oil conversions in the U.S. Northeast “may offer the highest growth potential in residential and commercial sectors.”

The U.S. Energy Information Administration said on its website that residential propane prices averaged $2.84 US per gallon on March 18, its most recent number, versus $4 for heating oil.

And somehow, "they" are going to have to move all that propane from North Dakota to where folks want more of it. 

Wudda/cudda/shudda.

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And you all thought I was going to end there.  Did I miss something? Go back, re-read the post. You only have to read about a third of the way down.

The Marcellus: a natural gas play; 1.8 billion bbls of propane per year by 2020.

The Bakken: an oil play; 2.0 billion bbls of propane per year by 2020.

The Bakken is where the buffalo roam, where the deer and the antelope play, and propane is a by-product that most operators would just prefer to flare away for all the nuisance it presents. LOL.

The takeaway: if the Bakken is going to outproduce a natural gas play, the Marcellus, with a by-product, think how huge the Bakken is. 

And you all knew this was coming:

Propane, Hank Hill