The Oil Market Has a Growing Gas Supply Problem

Dig into predictions for global oil production and you’ll see the growing importance of a niche gassy fuel.

Since May, the US government’s 2025 estimates for global crude output have been pared back by about a million barrels a day.

However, the Energy Information Administration’s forecast for other supplies — which include the natural gas liquids that are a byproduct of oil production — has leaped by roughly the same amount, offsetting the change in crude estimates.

It’s a shift that matters because it’s quietly reshaping oil-market balances.

Natural gas liquids don’t have to go to a refinery. Instead they’re processed in petrochemical plants — particularly in China — to help satisfy surging global demand for plastics.

When analysts count barrels, they don’t just look at the crude supplies that impact Brent and West Texas Intermediate futures, they also consider all of the oily liquids in the world — including refined products, condensate and natural gas liquids.

But other oils can be difficult to track accurately depending on how data providers choose to characterize supply. Even at the best of times, output figures can be slow and backward-looking.

The jump in NGL supply has in part been spurred by the US energy boom. While crude production growth has slowed down, the share of natural gas liquids in US supplies has steadily risen.

At the same time, China has been investing heavily in petrochemical expansions, boosting demand. The International Energy Agency has previously said that the flow of US natural gas liquids to China has been the single largest driver of oil demand in recent years.

“While estimates for crude supply growth alone have become more conservative, the NGLs estimates have been revised,” said Harry Tchilinguirian, head of research at Onyx Capital Group. “With the shale revolution, you had strong growth in NGLs like propane, and when you have an outlet like China, it makes sense to maximize production.”

A key question for markets this year is whether supply of oil that’s not crude will continue to muddle balances.

Over the last two years the biggest volume of extra supply has been from petroleum gases, IEA data show. OPEC member Nigeria said this week it’s planning on ramping up condensate supplies.

It’s all making life much harder for the market’s barrel counters.

—Alex Longley, Bloomberg News