Can Mont Belvieu Handle the NGL Supply Surge? - Part II

Mont Belvieu is the center of the universe for U.S. natural gas liquids (NGLs) processing because of its massive infrastructure of storage, hydrocarbon pipelines, processing, fractionation, distribution and end use consumption. The Mont Belvieu complex is growing by leaps and bounds in response to burgeoning NGL supply from new wet gas production in the U.S. In today’s blog, “Can Mont Belvieu Handle the NGL Supply Surge? – Part II” we’ll take a closer look at the operation of Mont Belvieu fractionation and storage facilities.   

First a quick recap of Part I (see “Can Mont Belvieu Handle the NGL Supply Surge? – Part I”). We learned that the small town of Mont Belvieu, just east of Houston TX, sits atop one of the largest salt dome storage complexes in the world. We described the many advantages that Mont Belvieu enjoys as an NGL processing center including storage and connections to inbound pipeline systems, product  distribution systems and nearby petrochemical plants and oil refineries. These advantages help to make Mont Belvieu the center of the U.S. NGL universe today. We introduced the “Big Four” players that dominate the ownership and operation of Mont Belvieu facilities.  We also learned that by 2013, about 300Mb/d of incremental Y-grade NGL supply will flow into the Mont Belvieu processing hub from the burgeoning U.S. wet gas shale plays. Today we take a more in-depth look at fractionation and storage facilities in Mont Belvieu.

Y-Grade Transportation

As you will recall, NGL’s start their life as a raw stream (it is and has always been called “y-grade”, a throw-back to an ancient MAPCO quality specification; a.k.a, mixed NGLs, raw make, raw mix, etc.) that has been extracted by processing wet gas sourced from one of the U.S. gas production basins. Y-grade is the raw material that the Mont Belvieu processing hub feeds on. Y-grade has no commercial value before it is fractionated at a center like Mont Belvieu into useable “purity” products; ethane, propane, normal butane, isobutane and natural gasoline.  Y-grade is not traded as a product.  It is worth what the constituent component products in the mixed stream are worth.

At a simplistic level, fractionation is no more that the splitting of y-grade into the individual NGL products that make up the mixture.  In reality, fractionation is a complex, highly tuned industrial process which vaporizes and then condenses NGLs in huge towers, each specifically configured to extract a specific NGL molecule.  Wherever the y-grade feeding Mont Belvieu originates from, it is shipped to the area via one of several y-grade transportation systems that extend out into the gas production areas.  Each of these y-grade transportation system pipelines has unique storage and fractionator connections at Mont Belvieu.

Fractionation

Today the y-grade is delivered through these transportation systems to one of numerous fractionation facilities at Mont Belvieu. Just four companies own these fractionation facilities today (see table below). By 2014 there will be another new fractionation owner, Lone Star NGL (five companies in total) and the capacity of these facilities will have expanded by more than 70 percent from 945Mb/d today to 1,640 Mb/d. The fractionation capacity represents a huge financial investment and is usually owned by multiple companies (to spread the fixed cost investment risk). One company – usually the largest investor, then operates each facility. For instance the Oneok Fractionator (also known as “Mont Belvieu 1”) is owned by Oneok (80%) and DCP Midstream Partners, LP. (20%) and the Enterprise Fractionator, is owned by Enterprise Products Partners (75%), DCP Midstream Partners (12.5%) and Phillips 66 (12.5%). Looking at the Mont Belvieu fractionation table below, you can see that, as you’d expect the “Big 4” (Enterprise, Energy Transfer (Lone Star), Oneok and Targa are the major players.

Each fractionator has different y-grade product specifications (pressures and  quality parameters of product) and ways of receiving the y-grade, i.e. pipeline connections and tank car loading capabilities. Each fractionator also has different timing from receiving the y-grade to the delivery of purity product, purity product specifications, storage capabilities, and methods and locations to deliver the purity product (trucks, tank cars, pipeline, waterborne delivery etc.).

Fractionation Fees and Costs

Fractionators charge a fee to split y-grade into purity product NGLs.  A few months ago we touched on fractionation fees in our four part series “The Golden Age of Natural Gas Processing” (look here for Part I, Part II, Part III , and (Part IV).  Natural gas producers strike deals with natural processors to process wet gas in a natural gas processing plant.  The plant produces pipeline-quality natural gas (about 1050 btu gas that meets the quality specifications for long-haul pipeline transportation) and it produces a y-grade NGL stream.  In some cases the gas plant has on-site fractionation facilities and can produce purity products for delivery to local markets.   But the vast majority of natural gas processing plants today deliver the y-grade into one of the pipeline transportation systems described above for delivery in to one of the major fractionation centers – with Mont Belvieu being the granddaddy of them all.

There are a variety of processing arrangements that we described in Part IV of the Golden Age.  In some cases the producer retains title to the y-grade and must handle transportation and fractionation.  In other arrangements, a midstream company takes title, transports and fractionates the product, and settles up with the producer financially.  Regardless, someone has to pay to get the y-grade to Mont Belvieu and someone has to pay to get the y-grade fractionated. 

Fractionation is not cheap. If you are lucky enough to be grandfathered in to ‘vintage’ fractionation capacity, you are probably paying something like $.035/gallon or $1.47/Bbl.  If you just signed up to some of the new capacity just being built, the number will be closer to $.055/gallon or $2.31/Bbl. 

Storage

Much of the purity product coming from fractionators is subsequently delivered to the Mont Belvieu salt cavern storage facilities. Product is “parked” in storage until demand dictates when and where it will be traded or moved to next. The fractionation companies own some of the storage facilities, but not all of them. Each storage location has its own fees, terms and conditions (timing and volume) and physical restrictions (size, loading, unloading, product specs, pipeline connections, and timing of product movement etc.)  Fees from storage to storage and product to product vary greatly depending upon the facility and the individual deal structure (more about storage capacity and fees later in this series).

Similar to the fractionation facilities, most of the third party storage facilities have more than one interest owner. Once again, the biggest storage owners include the “Big Four” companies – Enterprise, Oneok, Targa and Lone Star.

Expanding Facilities

Mont Belvieu is growing by leaps and bounds. Six new pipelines are being developed to bring new Y-grade supply in. A dozen new fractionation projects or expansions will come online in the next few years to process the Y-grade. Several export terminals are being planned or expanded to handle the output from Mont Belvieu fractionation - purity NGLs that the Gulf Coast cannot absorb. Large-scale petrochemical refinery expansions are planned in the region including new olefin crackers counting on sourcing a majority of their feedstock from Mont Belvieu purity products.

Implications for Natural Gas Producers

With all the expansion going on, new competition is entering the playing field.  In these circumstances natural gas producers want to send their y-grade to a facility that can be counted on to provide seamless, hassle-free, and fair priced service, and to ensure that their purity product can be delivered to a valuable end use market. Producers also want to maximize their share of the now highly profitable fractionation process.  As always in the NGL market, business relationships are all-important in securing the best service, the best economics and the best overall results.

Conclusion      

The Mont Belvieu world is changing rapidly as facilities and NGL volumes expand. The gathering, fractionation and storage processes at Mont Belvieu are operated by a handful of major companies that have invested heavily in infrastructure. The next few years will severely test the flexibility of this massive processing center to handle the NGL surge.

In our next blog in this series, we will literally follow the life (cradle to grave) of a typical barrel (42 gallons) of propane. That gallon will travel over 1,000 miles and incurs costs exceeding $5.00/barrel along the way.