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The Ethane Asylum: Big Time Ethane Rejection in the Shale Gas World

Ethane in Mont Belvieu posted at 22.5 cnts/gal on Friday, continuing the NGL’s descent into the abyss that started mid-2012.  The last time we saw ethane at this level was back in 2002.  With natural gas prices hanging in there above $3.00/MMbtu, there is no doubt about it.  We are deep into ethane rejection economics.  Not just for the Conway market like we had last summer.  But wide spread, across the board, knock-out-the-ethane style rejection, unlike anything we’ve seen in the last five years.  In fact, this is something new.  Impending widespread rejection in the world of shale… a world of ultra-rich gas, deep ethane cuts, and constrained infrastructure.  Today we’ll drill down deep into the numbers.  It’s enough to make you crazy.

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

First let’s put where we are in perspective.  As we show in today’s Spotcheck “Ethane to Henry Hub Gas Ratio” graph, the price of ethane on Friday was only slightly above the price of natural gas on a BTU basis – a ratio of 1.03.  (Click here if you have trouble accessing Spotcheck.) But if you adjust the ethane price for the cost of transportation and fractionation (T&F) to get the value back to the plant level it gets a lot worse.  Assume 10 cnts/gal for T&F and the ethane price is more like 60% of the BTU equivalent price of natural gas at the plant tailgate.  These are serious ethane rejection economics for plants feeding Mont Belvieu.  And of course, Conway is worse with pricing at 19.9 cnts/gal.  Way above the prices this summer, but still in ethane rejection territory.

Processing Economics – Eagle Ford Plant Example: Base Case

We’ve talked about ethane rejection many times  before, both from the perspective of the math involved (Computing NGL Quantities, BTU Content and GPM) and the market impact of rejection (It Don’t Matter to Me, Nowhere to Run, Frac Spread Cliff).   Today we’ll pick up an example of an Eagle Ford plant that we examined back in How Rich is Rich? – Gas Processing Economics Part 3: Computing NGL Quantities, and analyze the consequences of ethane rejection at this plant. 

Table #1 below lays out the basic data for our representative plant.  It is a fully loaded 200,000 Mcf/d plant (Blue, Cell B9) running 5.65 GPM gas (Green, Cell C9), which is fairly typical for Eagle Ford.  The Mole percentages of each component of the feed gas are shown in Column A, which yields a 1,258 BTU content of the feed gas stream (pink, Cell F7).  This is a relatively new plant, so the recovery percentages are good - 99% for all liquids except ethane, which is 90%.  This means that the extraction process leaves 10% of the ethane and 1% of the other NGL products in the residue gas stream.   Crunch all those parameters through the RBN Processing Plant Model and we see that total liquids production is 26,893 barrels per day (Cell D7), with ethane making up 56% of the barrel (Column E).    Again, if you really want to know more details, all of these calculations are described in mind numbing detail in How Rich is Rich.

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