Good to Be a Gas Processor - The Rejuvenation of Natural Gas Processing Economics, Part 3

Prices for heavy NGLs (propane, butanes, natural gasoline) have been rising fast since the middle of 2017, but the same cannot be said for the price of ethane. For most natural gas processors/producers, low ethane prices mean that ethane continues to be worth more when sold with natural gas (rejected) than when it is extracted and sold with the other liquids. But as NGL production continues to grow, hitting a record-high 3,968 Mb/d in October 2017, and new steam crackers are just starting to come online, there is a limit to how much ethane can be left in the residue gas stream without violating dry gas pipeline Btu specifications. How do processing plant designs, gas pipeline specs and economics play into a gas processor’s decision regarding whether to extract or reject ethane? Today, we continue our discussion of RBN’s MQQV gas processing model — this time focusing on the Quantity and Quality principles.

In Part 1 of this series, we reviewed the calculation methodology, the history and the pros and cons of the Frac Spread — the difference between the price of natural gas and the weighted average price of NGLs on a Btu basis. We noted that while the Frac Spread is a good indicator of the relative health of natural gas processing over time, it is not representative of the processing margin for a particular stream of inlet gas. That is because the Frac Spread does not take into account the quality of the gas being processed either in terms of the liquids content or the Btu content, nor does it factor in the operating efficiency of the plant or help determine if ethane rejection makes sense. These factors and others ultimately determine the quantity of NGLs that a gas processing plant can produce from a given inlet gas stream.

For this more detailed analysis, we need a model that goes deeper than a simple Frac Spread. In Part 2, we began our explanation of gas processing margin calculations using RBN’s MQQV (MeasurementQuantityQuality and Value) gas processing model. We got as far as looking at Measurement and briefly introducing Quantity in Part 2, so today we will explore the rest of Quantity before moving into Quality. In the next episode of this series, we’ll discuss the Value calculation and how all four factors are combined to analyze a gas processing plant.

Things get much more interesting as you delve further into the Quantity and Quality portions of the MQQV gas processing model because these are the components that help a processor or producer decide whether to extract or reject ethane and whether or not that option is viable given dry gas pipeline Btu specifications. We’ll start by looking at the same Eagle Ford gas sample we used to calculate the propane GPM (or gallons per Mcf of gas processed) at the end of Part 2 of our analysis. 

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