Of the five natural gas liquids (NGLs), isobutane stands apart in its sources and markets. Isobutane comes from gas processing plants and refineries, but it is also the only NGL intentionally made from another NGL – it’s cousin, normal butane. It has a variety of exotic uses, such as aerosol propellant for everything from hair spray, to cooking sprays to shaving cream and since the early 90s as a replacement for Freon in refrigerators. A refinery process called alkylation is the largest market for isobutane, producing a high-octane gasoline blending component called alkylate. Even though it has robust markets, isobutane supply/demand balances are not immune to the growing volumes of high-BTU, “wet” shale gas and the resulting torrent of NGL production. And as gas plant isobutane volumes increase, there are changes coming to isobutane balances and the demand for merchant isomerization. Today we begin our series on isomerization by exploring what it is, why it’s valuable, and how it’s done.
Posts from Callie Mitchell
U.S. gas plant production of propane is up 25% since early 2011, far above growing volumes of ethane, held to only an 8% rise by rejection economics. As propane supplies have surged, prices have come down hard…. But not nearly as hard as would have been the case if it were not for rapidly increasing exports. And where are all these barrels going? That’s right. In a conga line of ships headed to Latin America where the growth in imports from the U.S. into some countries has been off the scale. Which countries are taking all this propane? How long can this go on? How much dock capacity does the U.S. need? What could derail this development? Today we begin a blog series to explore these questions.
No, this is not the Whoville located south of Mt. Crumpit within the mountainous high range of Pontoos. And there is no Grinch in this Houville, at least during the 2012 Christmas season. Instead, this Houville is the center of an emerging Marcellus/Utica based NGL hub soon to take its place among the largest in North America.
With all the new NGLs coming on, there has been periodic hand wringing about fractionator capacity. The good news is that there is a lot of capacity being built. So much so that it appears that the fractionators will be able to keep up with the producers and inbound pipes, at least most of the time. Notice however, that even though new NGL production from shale gas is growing most rapidly in the Northeast over 60 percent of the new capacity will be at Mont Belvieu or the Texas Gulf Coast region. Today we examine why Mont Belvieu remains the center of the NGL universe.
There is a close, symbiotic relationship between brine and natural gas liquids. Most NGL storage is in huge underground caverns washed out of salt formations thousands of feet below the surface. That washing or ‘leaching’ process makes lots of brine. When the storage caverns or wells go into service, the NGLs replace the brine. But when NGLs are removed from the wells, brine must displace the NGL barrels. Nowhere is this relationship between brine and NGLs more entwined with the history of the facilities than at Bumstead and Adamana, two storage facilities in Arizona. Today we continue our series looking at the unique niche these two operations fill in the NGL marketplace and where they may be headed in the future.
We’ve talked a lot here about NGL storage in Mont Belvieu and Conway. Those are the big underground storage caverns washed out of salt formations thousands of feet below the surface. But those are not the only places where NGLs are stored in underground salt caverns. Two important facilities, especially for West Coast NGL markets are located in the seemingly unlikely locations of Bumstead, AZ and Adamana, AZ. Today and in a later follow up we’ll look at why these facilities are in Arizona, how they got there, and the unique niche they fill in the NGL marketplace.
News flash! ---Rail transportation has become a very big deal in the business of transporting crude oil, NGLs and petroleum products!!----The whole world does not revolve around pipelines! Yup, the media has discovered that hydrocarbons can ride the rails. Never mind that liquid hydrocarbons have been moving in tank cars for 150 years. The news is that rail is having a market impact like never before. And that is because there has been a strategic shift in the way rail transportation is being used by the petroleum industry. In Part II of our series we’ll dissect the strategies being used and discuss how things are evolving in the world of tank cars.
Over the next five years, production of natural gas liquids (NGL’s) from gas processing plants will increase by at least one million barrels per day, or about 40% over 2012. Perhaps more. That’s good news for natural gas producers, processors and end-use markets. But there is a catch. The rate of production does not match up with demand. While production is a steady, “ratable” volume, demand is anything but ratable. Demand swings with petchem feedstock economics, the gasoline blending season, weather and a myriad of other factors. The flywheel that balances supply and demand on any given day is storage. But not just any storage. For NGLs, storage of large volumes means salt caverns. Huge caverns thousands of feet below the surface. In this NGL storage blog series starting today, we’ll look at the history of NGL salt storage, where it exists, how it is used, and where more of it is needed. In this first installment we’ll go all the way back to the origin of NGL salt storage. All the way back to Smoky Billue.
Unlike pipelines that take a long time to build and only deliver to a handful of destinations, rail freight cars offer the flexibility to deliver anywhere across North America. The rail freight industry can load, store and transport different NGLs (including those NGL products that must be transported under high pressure) as well as crude and petroleum products. Rail infrastructure is mostly already in place so new routes can easily be brought on line. That’s why rail freight has been used successfully by the energy industry for over 100 years as - a “pipeline on wheels”. Today we look at the rail tank car business for moving NGL and petroleum products.
The West Coast natural gas liquids (NGL) market is an island unto itself. Unlike the world east of the Rockies where pipelines link together producing and consuming regions, the West Coast NGL market is marooned except for rail tank cars and a few waterborne cargos. It is a fiercely independent market with its own unique players playing their own ballgame. But like the rest of the NGL world, big changes are rippling through that market. Today we begin a series looking at those changes and how West Coast NGLs are likely to evolve over the next few years.
This week when nominations come to mind your thoughts naturally go to the political candidates in general, and the Tampa convention in particular. But don't forget about that other kind of nomination - the most important step in the scheduling of NGLs and other hydrocarbon transportation. Today we will continue our blog series on the Art of NGL Distribution by examining exactly how the nomination step takes place. We’ll continue the scenario covered last week in Movin’ Down the Line – Conway Propane to Janesville, WI on MAPL. That’s a nomination from Kansas, so we thought a politically themed title would be appropriate.
It’s still August, but there already is crispness in the Wisconsin mornings. And to a propaner, that’s a signal that the heating season is on its way. It is time to get those supplies lined out, and to make sure that customers are ready for the winter. But Wisconsin is a long way from the centers of propane supply. How does the propane get there? How do the Distribution experts make sure the right volumes are in the right place at the right time? In today’s blog we’ll continue our exploration of the Art of NGL Distribution by digging into the mechanics of moving supply on the Enterprise Mid-America Pipeline (“MAPL”) system from the Conway, KS hub to the Wisconsin market. Along the way we’ll learn how propane is scheduled on a pipeline system, how a NGL pipeline tariff works, and why the word “allocation” sends shivers down the spine of an NGL shipper.
We’ve talked here frequently about the two ends of the Natural Gas Liquids market. On one end we have the commercial aspects of the business – things like pricing, differentials, processing economics and feedstock selection calculations. At the other end, there is the operational infrastructure – processing plants, pipelines, fractionators and downstream demand, including olefin plants. You may have wondered – what ties the commercial and operational worlds together? In the NGL world, the answer is Distribution – often the unsung hero of the NGL marketplace. Where the rubber meets the road. Where deal-making is translated into reality. Today we start a series of blogs to examine why NGL distribution is so important to the market, how it works, how Distribution generates value and why it is much an art as it is a science.
The Gnats Patootie
NGLs are complicated. First of all, there are five different products included under this umbrella: ethane, propane, normal butane, isobutane and natural gasoline. Each has different physical characteristics and different markets. With the exception of natural gasoline, all of the NGLs require high pressure and very low temperatures to move in a liquid state. All are highly flammable, heavier than air and require special handling all across the value chain – things like processing, fractionation, high pressure pipelines, insulated trucks rail cars, and salt dome storage. The total cost of all of this frequently can add up quickly, running over $0.20/gallon or $8/barrel, and occasionally much higher. It seems mind boggling, and for an amateur it can be.
The good news is there are many talented people behind the scenes working to ensure this is done well and efficiently. They live and breathe in a world filled with jargon terms like pump tickets, tenders, tariffs, fuel adjustments, product losses, pipeline allocations, product specs, late fees, component balancing, Product Transfer Orders (PTO’s), Bill of Ladings (BOLs), Freight on Board (FOB), demurrage, pumpovers, batch orders, stenched, unstenched, and the list goes on. It is a world that does not stop at 5pm. Product is moving 24 hours a day, 7 days a week. Most of the time things go right. But sometime things go wrong – mechanical failures, process upsets, product handling errors, and worse. All of these issues must be handled in a timely, methodical and professional basis. At the end of the day, all the paperwork (or databases, these days) must reconcile down to a gnats patootie. That’s a much tighter specification than six sigma.
The folks that inhabit this world are the Distribution experts – who can make or break the economics for NGL transactions. The job is Distribution. And the process is mysterious, critical, and truly an art—an art in which the big midstream players make big investments.
Is it just scheduling product from place to place? No, it’s a long way from that. The process involves understanding and actively engaging in every part of the NGL’s life from production to end use (like y-grade and propane in the Long and Winding Road Part I & Part II) and squeezing out every bit of value possible; down to a small fraction of a cent. It requires understanding the operations of production forecasting, gathering, gas processing and pipelines operations, high pressure tank cars, trucks, waterborne ships and barges, loading docks, fractionation, storage – salt caverns and above ground bullets, PTO’s (product transfer orders), computer technology, and cash flow.
The Art and Magic of NGL Distribution
But the Distribution expert must know more than the physical hardware. Infrastructure knowledge must be combined with a solid understanding of contract terms/flexibility, market intuition, and negotiating skills. It is truly an art to pull all of this together in a distribution plan that can be effectively and profitably executed. But that is still not enough. This knowledge must be combined with the talent and skill to develop great, dependable and valuable relationships with other people in the Distribution fraternity. It is these relationships that make the “magic” of this process happen. Some of the best in the industry have been doing this their whole career and are truly masters.
Companies who are serious about making money on NGL’s invest in the best and brightest to do Distribution for them. The large companies have Distribution experts for each product and each piece of the road. Others have experts handling larger pieces or the entire journey.
So what do most of these Distribution experts do? Just think, every time an NGL molecule changes location or changes hands a long chain of activities takes place. Each movement must be subject to a contract between the parties. Each transaction must be measured, reconciled and ultimately financially settled. Frequently (but not always) the triggering event for the physical movement of product is scheduling. That activity makes up a big part of the Distribution function, and it is a perfect place to start our journey.
Scheduling NGLs: Introducing Scenario #1
In “The Long and Winding Road”…we followed the journey of a molecule of propane from producing well to end-use market, which was a relatively typical journey. In the background of that story there were a minimum of 7 scheduling points, requiring at least 14 schedulers, tons of technology, phone calls, emails, spreadsheets, and lots of very high (human) energy. If that journey hadn’t been so smooth, those numbers (and Advil consumption) would be on the rise. Rarely does it go that smooth. Let’s look at some other typical winding road scenarios and do a deeper dive into exactly what NGL scheduling is all about.
“A Midwest NGL Company” (“AMNGLCo”) is a large midstream company that owns NGL assets and owns or controls production all over the US and Canada. Propane expertise has been the foundation for their success and a staple product for decades. They own it, buy it, sell it, transport it, store it, speculate on it, and build assets around it. Similar to other large midstream companies, distribution and scheduling is centralized in their home office, in this case located in Gotham City, Oklahoma. Those experts work via phone and e-mail with the “field” operations (considered all the people who physically make and move NGL’s) out and around the continent. This is an example of a company that understands the complexity and importance of Distribution and has the process down pat.
Here is just one (of many) scenarios that AMNGLCo could face every day.
“Keep (us) Dry!!!”
On Friday purity ethane in Mont Belvieu came in at 36.4 cnts/gal on OPIS, up 1.5 cnts while Conway ethane in E/P mix was up 1.25 cnts to 15.75 cnts/gal. Given that at this time last month Conway was trading at a dismal 2.25 ctns/gal while Mont Belvieu was wallowing under 30 cnts/gal, these numbers sound pretty good (See Chart #1 below). But let’s not lose sight of the fact that these prices are still dirt cheap. This time last year ethane prices were 2.5X to 3X higher. Is this simply a replay of the natural gas-oversupply-price-collapse story as some are saying? Or is it more complicated than that? As you’ve probably guessed, it is definitely more complicated than that. Because this the simplest of the NGL molecules turns out to be surprisingly complex in the marketplace. Today we’ll break down that complexity by looking at the details of the ethane markets.
By 2013, nearly 300Mb/d of incremental NGL supply will flow to Mont Belvieu from the burgeoning U.S. wet gas shale plays. Belvieu continues to dominate the NGL universe because of its critical location at the center of NGL gathering systems, product distribution pipelines and the Gulf Coast petrochemical feedstock market. Is this hub big enough to handle the huge production growth? Who stands to benefit from all of the infrastructure expansion? In Part I of our series on Mont Belvieu titled Can Mont Belvieu Handle the NGL Supply Surge? we’ll examine this thing called Mont Belvieu and look at the “Big Four” Belvieu players to see how their assets dictate trading terms at the hub.