Of all the NGLs processed in Mont Belvieu, some 30 percent end up being distributed to end use markets as propane. Before that propane reaches Mont Belvieu it will have followed a long and winding road from where it was extracted out of the ground in a wet gas production field. Yesterday we followed a propane molecule down such a winding road from a lease in the Permian Basin, through a processing plant and on to a pipeline destined for Mont Belvieu. Today we complete the journey of a propane molecule through fractionation, storage and a petrochemical plant to its final destination as a household trash bag.
To recap, in yesterday’s first installment (see Part I to catch up if you missed it) we followed the journey of a single molecule of propane from a gas production lease in the West Texas Permian Basin. Our molecule began its life as part of a stream of wet (high BTU) gas that was treated locally at the lease to remove impurities and then headed to the Midkiff/Benedum processing facility where the wet gas was processed to separate dry gas (methane) and natural gas liquids (NGLs). After processing, the dry gas heads off to market as natural gas, while our propane molecule was shipped by pipeline to Mont Belvieu as part of a batch of y-grade NGLs on the Lone Star pipeline.
Our propane molecule’s journey across Texas from the Permian Basin on the Lone Star Pipeline takes it into Mont Belvieu. You will recall from our earlier blogs about Mont Belvieu (see Can Mont Belvieu Handle the NGL Supply Surge Part I and Part II) that Lone Star is one of the “Big Four” players at Mont Belvieu. Owned jointly by Energy Transfer Partners LLC (70 percent) and Regency Energy Partners (30 percent). (Energy Transfer later acquired a controlling interest in Regency). Lone Star was formed in 2011 to acquire the NGL storage, fractionation and transportation business of Louis Dreyfus Highbridge Energy LLC, a transaction closed in May 2011.
Lone Star Mont Belvieu facilities include 43 MMBbl of salt dome product storage capacity and 23 MMBbl of brine (salt water) pond capacity. Lone Star does not currently own fractionation capacity or y-grade storage at Mont Belvieu. The company is in the process of constructing two brand new 100 MB/d fractionation facilities at Mont Belvieu, expected online in the first quarter 2013 and the first quarter 2014. Until then our incoming propane molecule, still mixed in with its fellow y-grade stream of NGLs will be pumped directly from the Lone Star pipeline to a fractionation facility.
Lone Star’s current set up is not typical. Generally incoming y-grade at Mont Belvieu gets dumped initially into y-grade storage wells. The y-grade typically sits in storage until it is scheduled for fractionation. In our case, however, our molecule heads directly to fractionation capacity owned by another of the “Big Four” companies – Oneok.
Oneoks’ Mont Belvieu MB1 fractionator has 200MB/d fractionation capacity today. Like everyone else at Mont Belvieu, Oneok is expanding – they will add another 75 MB/d in 2014 when the imaginatively named Mont Belvieu MB2 fractionator comes online. In the meantime, our molecule will be fractionated at MB 1.
Fractionation – Isolating our propane molecule
Once Oneok receives the y-grade (that includes our propane molecule), it begins a rollercoaster ride up and down huge fractionation towers (see picture below). Each tower applies a different pressure (least to highest in order) to “drop” individual NGL products from the y-grade stream. The first tower extracts the heaviest NGL (natural gasoline), followed by butanes (normal and iso) and then propane and ethane mix. Finally the ethane is separated from the propane and it is ready for market. The propane that is extracted in this way is considered “spec” or HD-5 propane, meaning that it is at least 90 percent propane with no more than 5 percent propylene.
Source: RBN Energy Vacation Snapshot
Our estimate is that a propane molecule like ours will typically incur a $0.035/gallon or $1.47/Bbl fee for fractionation in one of the ‘legacy’ units, assuming that the fractionation is pursuant to a long term contract. That fee will be considerably higher for the new fractionation capacity being constructed - closer to $.055/gallon or $2.31/Bbl. In our case, Lone Star bundles the transportation and fractionation (T&F) fees together to charge one fee for the “round trip” out of the pipeline, through fractionation and into storage. Based on our estimates, that round trip fee comes out at roughly $0.03786/gallon or $1.59/Bbl.
When fractionation is complete only close family surrounds our propane molecule – it is now part of a purity propane batch. The purity propane molecules are placed into a Lone Star propane storage salt dome well. Storage costs are subject to agreement and vary widely across Mont Belvieu. We estimate that average monthly Mont Belvieu storage costs range between $0.21/Bbl and $0.40/Bbl or between $0.005/gallon and $0.01/gallon. On top of that, every time our propane molecule moves in or out of storage it will incur a transfer fee of about $.06/Bbl, or $0.00143/gallon.
Our purity propane molecule sits in storage for a period of time until it is transferred to an end use destination. If the propane is destined for consumer markets it will likely be consumed during the winter months for heating and as such may remain in storage at Mont Belvieu until it is shipped to buyers along the Dixie Pipeline (South Eastern States). As it happens our propane molecule is destined to be feedstock for one of the many olefin crackers connected by pipeline to Mont Belvieu.
While in storage, our propane molecule can and probably will change hands – possibly multiple times – without even moving. This is because of buying and selling (trading) between Mont Belvieu market participants. This trading may be physical trading between companies that need propane to meet customer commitments or have excess physical product to sell. Trading also includes speculation - where traders buy propane to hold it in storage in the belief that prices will rise or sell propane when they believe prices may fall again - simply to realize a profit. Each time our molecule changes hands in this way it will incur a product transfer order (PTO) fee of about $0.06/Bbl or $0.00143/gallon. Basically this is the cost of the paperwork (a software system, of course), necessary to keep up with who owns which barrels.
As you will recall, propane is used primarily for petrochemical production and home heating. About 40 percent is consumed by the 37 olefin crackers (owned by 15 companies), most of which are within 100 miles of the fractionators in Mont Belvieu.
Moving from storage to become a trash bag
Our propane molecule is destined to become part of a large batch of propane that Dow Chemical purchases as feedstock for its ethylene cracker in Freeport. Lone Star will pump the propane to them (through Dow’s pipeline connection) straight from the storage well.
When it’s time to move out of storage our propane molecule gets pushed out of the well by pumping some of the storage facility brine into the salt dome storage well. That brine pushes our molecule of propane out of the storage well and into a pipeline connection to the Dow ethylene cracker. The propane is then pumped to Dow’s ethylene cracker at Freeport on the Gulf Coast.
When our molecule gets to Freeport it is injected into a huge furnace subject to intense heat in the presence of steam and our molecule cracks under pressure. So sad. It comes out the other end as a tiny piece of a trash bag.
Ok, I oversimplified a few dozen steps between cracking the molecule and the trash bag. There are a lot of intermediate steps that will be the subject of future blogs.
And not only will we talk petrochemicals in upcoming blogs we’ll also explore this long physical road in more detail and its link to commercial activity. Then, we will look at the art of NGL distribution; how to plan and schedule all these molecules to and from all these locations. It is not surprising that our story will once again include the “Big Four” players; Enterprise, Lone Star, Oneok and Targa, as well as a cast of others like DCP, BP, Aux Sable, Devon, Williams, Enbridge, Phillips, Koch and Anadarko.
Each business day RBN Energy posts a Blog or Markets entry covering some aspect of energy market behavior. Receive the morning RBN Energy email by simply providing your email address – click here. |
