Module 5: Natural Gas Liquids Markets

Topics in Module 5 Include:

Module 5.1a — NGL Supply and Demand

Presenter: Rusty Braziel

The NGL markets this year have been just as chaotic as everything else. Prices are high and LPG exports are still flowing, although they’re down a little. The ethane market has tightened up, with more exports on the way, and production is increasing, but not as fast as the market would like. This module includes a thorough review of the NGL market, including production growth and exports, the state of Texas fractionation capacity, how strong demand and robust natural gas prices will keep ethane prices strong, and the prospects for Gulf Coast exports.

Module 5.1b — Lab Model: The NGL Frac Spread

Presenter: Rusty Braziel

The job of removing NGLs from the natural gas stream is called natural gas processing. A natural gas processing plant is, therefore, the physical linkage between gas and NGL markets. With rich natural gas production growing again in places like the Permian and the prices for natural gas and NGLs soaring, the interplay between those commodities will have major implications from upstream to downstream — and particularly for the processors who work at the fulcrum of gas and NGL markets. To simplify those relationships, we use RBN’s frac spread model, which calculates the difference between the price of natural gas and the price of NGLs on a BTU basis ($/MMBtu). Simply put, the greater the spread, the more favorable the market is for natural gas processors. The spread is a yardstick measure of the general financial health of the gas processing sector.

Module 5.1c — Lab Model: Ethane Recovery and Rejection Economics

Presenter: Todd Root

A continuation of Module 5.1a, we walk through RBN’s ethane rejection model, which we use to demonstrate how the economics of ethane rejection work in different regions of the country. The most significant variables between regions are the local price of gas and the transportation cost from the processing plant to the steam cracker where it will get used. In our model, that cracker is on the Gulf Coast. We’ll use the model to look at four basins: Permian, Appalachia, Bakken and the Rockies.

Module 5.2a — Gas Processing

Presenter: Rusty Braziel

To compute the economics of gas processing at the level of an individual plant or at the regional level, we need to factor in some specific types of data, like the liquids content of gas, the BTU of inlet gas, the extraction efficiency of a plant, the cost of getting a plant’s production to market, and the value of that market relative to the industry benchmarks at Mont Belvieu. To understand these factors and to really grasp the current state of the natural gas processing marketplace, we need to move beyond the frac spread to something much more detailed and representative of the processing value chain. RBN’s MQQV model gets its name from the four key factors it assesses and calculates: measurement, quantity, quality and value. When combined, these factors provide a logical means for determining how many barrels of each NGL are produced from a given raw gas stream and the economic uplift for the extraction and sale of those barrels.

Module 5.2b — Gas Processing Model

Presenter — Rusty Braziel

A continuation of Module 5.2a, here we walk you through each section of our model, using it to look at a 200 MMcf/d gas processing plant in the Eagle Ford. We can use the model to find out if processing the gas and extracting the NGLs will yield a positive gross margin, not counting things like cost of capital and plant expenses. This model is focused on the gas that comes in vs. the gas and NGLs that go out.

Module 5.3a — Petrochemical (Steam Cracker) Feedstock Margins

Presenter: Todd Root

There are more than 50 steam crackers in the U.S. that “crack” a variety of feedstocks (ethane, propane, butane, naphtha, gas oil) to produce ethylene as well as smaller volumes of propylene and other useful products. More than half of the plants are designed to crack specific feedstocks (mostly ethane or ethane and propane), while the others can switch between several different feedstocks to maximize their profitability. How much money they make will be a function of feedstock prices and the quantity required to produce a pound of ethylene in addition to the other products yielded in the steam-cracking process. By knowing these estimated margins, it is possible to project industry trends such as which feedstock will be preferred in a given price environment, which will, in turn, have an impact on both upstream and downstream supply and demand markets.

Module 5.3b — Lab Model: Petrochemical (Steam Cracker) Feedstock Margins

Presenter: Todd Root

A continuation of Module 5.3a, this model pulls together feedstock and product prices, petrochemical product yields and other factors necessary to estimate the margins for a representative Gulf Coast flexible steam cracker. In this section, we walk you through each step of the RBN Petrochemical (Steam Cracker) model, with a focus on the yields of various petrochemical products and co-products produced by each feedstock.

Module 5.4 — International LPG Markets: Destinations, Terminaling, Shipping and Arb

Presenter: Simon Hill

The world has been thrown upside-down by supply-chain issues, with demand for everything seemingly outstripping supply. Price inflation has become rampant, with crude oil supplies limping along while demand returned, and underperforming renewables increasing the call on natural gas for consumption instead of storage — and then came the war in Ukraine. All of this has an impact on LPGs, but the real focus remains Asian demand versus U.S. supply, the arb, and how shipping and terminal fees will vie for their share of the pie.