Topics in Module 7 Include:
Module 7.1 — NGL Production, Processing, Rejection, Fractionation, Transportation
Presenter: Rusty Braziel
NGL production growth has outpaced crude oil significantly. While the crude market has been subject to rising and falling production, NGL production has been consistently increasing. NGLs now make up 53% of total hydrocarbon production, up from 42% in 2019. The role of NGLs in the energy market is evolving, driven by NGLs’ diverse product mix and rising demand from the petrochemical and international markets. This module discusses development in NGL production, exports, and market dynamics.
Module 7.2 — Lab Model: Frac Spread
Presenter: Kristen Holmquist
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 dwindling near annual lows, 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 and NGL production. The spread is a yardstick measure of the general financial health of the gas processing sector.
Module 7.3 — Lab Model: Gas Processing
Presenter: Kristen Holmquist
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. We’re going to walk you through each section of our gas processing 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 and then the gas and NGLs that go out.
Module 7.4 — Lab Model: Ethane Rejection
Presenter: Kristen Holmquist
A continuation of Module 7.1, 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’s the Gulf Coast. We’ll use the model to look at four basins: Permian, Appalachia, Willison/Bakken, and the Rockies.
Module 7.5 — NGL Forecasts, Demand, Petchem Economics, Exports
Presenter: Rusty Braziel
Gas processing profitability has skyrocketed throughout the years, but most people don’t understand either the mechanics or the economics of gas processing. This lesson dives into our MQQV method — a model that simplifies gas processing profitability into a language that anyone can understand. Standing for measurement, quantity, quality, and value, MQQV provides a means for determining how many barrels of each NGL are produced given a specific raw gas stream at a given processing plant. This allows us to estimate the profit from the extraction and sale of those NGLs at a given price.
Module 7.6 — Lab Model: Petrochemical (Steam Cracker) Feedstock Margins
Presenter: Kristen Holmquist
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. We’ll walk you through each section in the RBN Petrochemical (Steam Cracker) model step-by-step, spending most of our time on petrochemical feedstock tables. The model takes the prices that are input into it to calculate margins for a representative Gulf Coast steam cracker based on the yields of various petrochemical products and co-products.
