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Inside the Ethane Asylum – Gas Processing Economics – Part 4: The Residue Stream

Last week in Ethane Asylum Big Time we looked at the implications of ethane rejection at a typical Eagle Ford plant, using as our example the model developed a few weeks back in our blog series titled How Rich is Rich – Gas Processing Economics – Part 3.  In order to get to the market implications and conclusions in “Ethane Asylum Big Time”, we skipped over some of the details of our calculations, promising to get back to the model this week.  So that’s where we are going today – deep into the gas processing model abyss.  Follow only if you dare.

Ethane Asylum Big Time examined the price signals and implications of widespread ethane rejection at U.S. natural gas processing plants.  By this past Friday, the numbers were even worse than last week.  As we show in today’s Spotcheck “Ethane to Henry Hub Gas Ratio” graph, the ratio of purity ethane in Mont Belvieu dropped to 0.99 of Henry Hub natural gas, the first time that’s happened since January 2009. (Click here if you have trouble accessing Spotcheck.)   The price of ethane fell below 22 cnts/gal.  

With natural gas at $3.33/MMbtu, that’s a recipe for significant rejection, both in the Mont Belvieu and Conway markets – the first time we have been in this market situation since the onset of massive wet (high-BTU) natural gas production from shale plays.  To grasp the implications for natural gas and NGL markets, we picked up on the model developed in our Gas Processing Economics series.  Go back to Ethane Asylum Big Time to get our conclusions from last week.   Today we’ll focus on how we got to those conclusions – the math inside our Gas Processing Economics Model.

As we’ve mentioned before, this is a deep dive, not a casual read. Also, it will be difficult if not impossible to follow today’s discussion without having read Parts 1, Part 2 and especially Part 3 of this series.  You have been warned!!

Check out Kyle Cooper’s weekly view of natural gas markets at http://www.rbnenergy.com/markets/kyle-cooper

Recap and Review of MQQV: Measurement, Quantity, Quality, Value

The model that we are working through is based on a totally non-memorable acronym – MQQV.  It stands for Measurement, Quantity, Quality and Value.  Don’t go looking for this term in engineering textbooks, because we made it up.  But it gets to the heart of our goal to really understand natural gas processing economics.

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