Ngl fundamentals 102 matonis public release

1
NGL Fundamentals
April 12, 2013 Houston, Tx
Instructor: Dr. Diana Matonis, MBA, PhD
Email: dmatonis@flucomp.com
Sponsored by OPIS
© Flucomp Enterprises, Inc, 2013
Sponsored by OPIS
About your instructor
Entrepreneur and Principal of Flucomp Enterprises leading projects to
successful completions in risk assessment, refining, renewable energy
and natural gas midstream operations and engineering with
environmental and air permitting compliance reviews, centralization and
upgrading of control systems, operations troubleshooting and
optimization, process unit and asset design, and data analysis.
Field Experience as Senior Engineer over 3 NG Processing Plants &
1 Acid Gas Well Injection

2
Sponsored by OPIS
EIA – Energy Departments Statistical Arm
April 2013
 U.S. oil production, which climbed to the highest level since
1992 in April, has exceeded 7 million barrels a day since
early February, according to the EIA, the Energy
Department’s statistical arm.
 Bloomberg survey also showed that U.S. refineries operated
at a rate of 84.9 percent last week, up 0.5 percentage point
from a week ago. The utilization rate was 86.4 percent a
year earlier.
Sponsored by OPIS
Definitions & Terminology
 “dekatherms” - unit of energy (MMBtus) – transactions of natural gas in pipelines
are defined by MMBTUs or dekatherms
 Acid Gas - Natural gas containing CO2 and H2S, they also form corrosive
compounds in the presence of water.
 N2, He and CO2 are commonly referred to as diluents since none of these burn, and
thus they have no heating value.
 Lease condensates - hydrocarbons that are a gas at reservoir temperatures and
pressures but are separated at site once brought to surface
 Refinery processing gain - refined products occupy a larger volume than the
original crude oil going into refinery.
 LPG is often incorrectly called propane. It is a mixture of propane and butane in a
liquid state at room temperatures when under moderate pressures of less than 200
psig
 “dry” natural gas can be directly delivered to pipeline form well after removal of H2O
& trace contaminants or it can refer to NG after NGLs removed
 Hydrocarbon Dew Point (HDP or HCDP) Temperature at a given pressure
components of natural gas will start to condense out of the gaseous phase.

3
Sponsored by OPIS
Terminology

 Y-Grade or Raw NGL Mix - are the raw NGLs (ethane, propane, butanes and
natural gasoline) extracted from natural gas by gas processing plants.
 Refinery Gas Liquids (RGLs) - are light hydrocarbons such as ethane, propane,
normal and iso-butanes that are produced as the result of refining crude oil.
 Fractionation - the process by which individual NGL components are separated
from raw NGL, LPG or RGL mixes.
 Frac Spread – is the term commonly used to express the price differential between
the market value of the individual NGL component and its heating value if left in the
natural gas stream. “Frac Spreads” are commonly expressed in cents per gallon
(cpg) or dollars per million British Thermal Units ($/MM BTU).
 Propylene Splitting - the process of purifying propylene to polymer grade by
fractionating out propane and other hydrocarbons from the propane/propylene mix.
 Isomerization – the process of changing normal butane to iso-butane..
 Primary Petrochemicals - mainly the production of ethylene and other olefin co-
products (propylene, butylenes) from the “cracking” of NGLs and refinery
intermediate products, such as naphtha and gas oil commonly referred to as heavy
liquids. The “cracking” of hydrocarbon feedstocks is the thermal process by which
Ethylene plants produce primary petrochemicals.
Sponsored by OPIS
The Midstream Sector is a collection of assets & services
that help bridge the supply side of the value chain with
the demand side for any type of energy commodity.
As such… The Midstream Sector is only as strong as the
linkages it has with producers and end users.
Simple Midstream Definition
Midstream
Pictures: Matonis, Hobbs, NM

4
Sponsored by OPIS
Common Units used O&G
 BTU is British Thermal Units [=] A measure of the heat necessary to raise 1 pound of
water 1 degree F
 1 Million Btus [=] MMBtu
 Quadrillion Btus [=] 1015 Btus
 Liquids/Crude Oil
 One Barrel = 42 US gallons
 Thousand Barrels per Day [=] MBPD
 Million Barrels per Day [=] 1000 MBPD or 1 MMBPD
 Gas/Natural Gas
 One Thousand Cubic Feet [=] 1 Mcf
 1 Billion Cubic Feet - 109 - bcf
 1 Trillion Cubic Feet - 1012 cubic feet - bcf
Barrel of Oil = 5.85 (Round up to 6 is used a lot) MMBtu
1,000 Cubic Feet of Gas = 1.020 MMBtu
Sponsored by OPIS
Conversion Examples
1. If crude is selling at $ 110/B, what is the heating
equivalent of gas?
$100/5.85 or $18.80/MMBTU
2. A company has 2,000 Bcf of natural gas production and
300 MMBbls of oil production. What is its production in
Cubic Feet Equivalent and in Barrels of Oil Equivalent?
2,000 Bcf + 300 MMBbls * 6 = 3,800 Bcfe
2,000 Bcf / 6 + 300 MMBbls = 633 MMBOE

5
Sponsored by OPIS
Reserves
 The Reserves tell us how much a company “believes it has” to extract.
 Reserves are categorized based on probabilities:
 1P “reserves" = Proven reserves (both proved developed + proved
undeveloped reserves)
 2P “reserves" = 1P (proven reserves) + probable reserves, hence "proved AND
probable."[3]
 "3P reserves" = the sum of 2P (proven reserves + probable reserves) +
possible reserves, all 3Ps "proven AND probable AND possible."[4]
Sponsored by OPIS
Average Natural Gas Composition
Chemical Name//Called Structural Formula
Molecular
Formula Boiling /Freezing Point, OF Heating Value, Btu/ft3 Mole Percent Range
Methane/ C1 CH4 -257.8/-296 1010 70-96%
Ethane/ C2 C2H6 -127/-297 1770 1-10%
Propane/ C3 C3H8 -44/-306 2516 0.1-5
(n-)Butane/ nC4 C4H10 32/-220 3263 0.01-3.0
Iso-Butane/ iC4 C4H10 11/-255 3252 0.01-3
Pentane Plus/ C5+ “Natural Gasoline”
Carbon Dioxide CO2 -71/-108 5-8
Oxygen O2 0-0.2
Nitrogen N2 0-5
Hydrogen Sulfide H2S -76/-116 0-5
Water, other trace …
contaminants
212/32 0-2
H C H
H
H
N
G
L

6
Sponsored by OPIS
The typical NGL “barrel” looks like
Sponsored by OPIS
World Oil Prices

7
Sponsored by OPIS
WTI or Brent?
Source: Texas Railroad Commission
Key Facts to keep in mind:
 Shale oil regions such as North Dakota have deposited a record highs to Cushing,
Oklahoma, the delivery point for WTI contracts, depressing prices.
 An important note: The US Energy Information Administration, Washington’s
official oil forecaster, switched to Brent Index in 2011
Sponsored by OPIS
NGL Supply Sources Primary Market
Gas Processing
Ethane
Propane
Normal Butane
Iso-Butane
Natural Gasoline
Crude Oil
Refining
Ethane
Propane
Normal Butane
Iso-Butane
Overland &
Waterborne
Imports
Propane
Mixed Butanes
Ethane
Propane
Normal Butane
Iso-Butane
Natural Gasoline
Primary
Petrochemicals¹
Normal Butane
Iso-Butane
Natural Gasoline
Motor Gasoline
& Blendstocks
Propane
Space Heating
& Other Fuel Uses
Propane
Mixed Butanes Exports
NGL Supplied NGLs Consumed
Fractionation
Y-grade NGL
Driving NGL supply and demand

8
Sponsored by OPIS
Fuels/Diluent
Power
Distribution
Local Gas
Distribution
Power
Generation/Utilities
Gas
Storage
Sales or Residue Gas
Transportation
Gas Gathering
Exploration &
Production Gas Processing
Fractionation &
Splitting
Upstream
Midstream
The NG & NGL Value Chain
Res/Com
Markets
Industrial
Markets
Refined
Products
Industrial
MarketsProduct
Storage
Refinery
Transportation
Downstream
NGL
Transportation
Sponsored by OPIS
Natural Gas Value Chain
“Residue Gas”
To Interstate
Pipelines

9
Sponsored by OPIS
Why Drill For Natural Gas?
 Natural gas is sold as a commodity
 Commodity markets are inherently volatile and so is the natural
gas market; the price of natural gas is set by market forces.
 High interaction of supply and demand => When demand
for gas rises, the prices rise accordingly=> producers
respond by increasing their exploration and production
capabilities.
Natural Gas Volatility and Price Levels at Henry Hub
Source: EIA Reports Monthly Gas Reports
Sponsored by OPIS
Lets Take a Look at Apache
Cash Flow Statement (USD)
Annual | Quarterly
FISCAL YEAR ENDING
31-DEC
2007
31-DEC
2008
31-DEC
2009
31-DEC
2010
31-
DEC
2011
Net Income 2.81B 712M -284M 3.03B 4.58B
Other Non Cash Operating Items 145M 50.8M 287M 301M 200M
Cash From Operations 5.68B 7.07B 4.22B 6.73B 9.95B
Other Investing Activities -5.01B -6.05B -2.94B -5.04B -7.25B
Cash from Investing -5.95B -5.74B -3.25B -13.4B -8.64B
Net Change in Cash -14.7M 1.06B 867M -1.91B 161M

10
Sponsored by OPIS
Statement of Cash Flows
 Reconciles the Income Statement and
Balance Sheet to the flow of cash
 The Matching Principle requires estimates
and accruals to prepare Financial statements
 Financial Analysis is concerned with Cash
Flow
Why is it important???
Sponsored by OPIS
331NS-20
Statement of Cash Flows
“A positive net income on the income statement
is ultimately insignificant unless a company can
translate its earnings into cash, and the only
source in financial statement data for learning
about the generation of cash from operations is
the statement of cash flows”

11
Sponsored by OPIS
Competitor Comparison
Sponsored by OPIS
NEW INTERSTATE PIPELINE EXPANSION
REPORT
Source: OPIS, LCI Energy Insights

12
Sponsored by OPIS
Petroleum Administration for Defense Districts, or
PADDs
Created during World War II under the Petroleum Administration for War
to help organize the allocation of fuels derived from petroleum products,
including gasoline and diesel (or "distillate") fuel.
Sponsored by OPIS
Analysis Easier with PADDS
The supply glut is depressing crude acquisition prices for refineries
located in the mid-west and rock mountain regions.

13
Sponsored by OPIS
US EIA Reports of NGL Production by PADD
Sponsored by OPIS
NGL Value Chain
Gas Plant
Y-Grade
Pipelines
Purity
Storage
Caverns
Y-Grade
Storage
Caverns Purity
Product
Pipelines Refineries
Chemical Plants
Agricultural/Residential
Industrial
Fuels
Fractionator
Production Gas
Processing
Transportation
Storage
Liquids
Processing
Marketing
Storage
Tanks
Distribution
“Residue Gas”
NG Value Chain

14
Sponsored by OPIS
Sponsored by OPIS
Import or Export Forecasts

15
Sponsored by OPIS
Fuels/Diluent
Power
Distribution
Local Gas
Distribution
Independent
Power
Generation
Gas
Storage
Transportation
Gas
Gathering
Exploration &
Fractionation &
Splitting
Upstream
Midstream
The Value Chain
Res/Com
Markets
Industrial
Markets
Refined
Products
Industrial
Markets
Product
Storage
Refinery
Transportation
Downstream
NGL
Transportation
Sponsored by OPIS
Types of Gas Defined by Well

16
Sponsored by OPIS
From Drilling to End Market
Sponsored by OPIS
Commonly Used Terms to Describe Crude & Gas
 Viscosity [=] A measure of its internal resistance to flow
 Density [=] is the mass per unit volume of the oil or gas
 pounds per cubic foot or grams per cubic centimeter
 Specific gravity of a Liquid (oil, condensates) is the density of the liquid
compared to the density of water.
 Specific gravity of a Gas is its density compared to that of air (about 0.6).
 Specific Gravity = 141.5 / (131.5 + °API)

17
Sponsored by OPIS
How Costs Impact Drilling Programs
 Capital costs to drill and complete shale wells are
significant:
 Leases are expensive once a play is known
 Fracturing process is necessary for production
 Locations can be difficult to access
 Water treating and disposal is required
 Once incurred, finding and development costs are
basically ‘sunk costs’ – but the pace of future drilling
depends on whether the variable costs of
production are covered by revenues
Sponsored by OPIS
Characterization
 West Texas Intermediate (WTI) crude at 39.6O and [S] 0.24%
 Brent Blend combination of crude oil from fifteen different oil fields located in
the North Sea with 0.34% [S]

18
Sponsored by OPIS
Wells or Not?
Sponsored by OPIS
Fixed and Variable Costs
 Fixed cost – Finding & Development (F&D)
 Metric used = $/Mcf
 Calculation
 Cost of leasehold acquisition, drilling, completion
(including fracturing), installation of production
equipment, divided by
 “Proved reserves” estimated volume
 Variable costs (operating expenses)
 Lease Operating Costs
 Gathering, Treating, & Compression Costs
 General & Administrative Costs (Office expense,
taxes, royalty payments, etc.)

19
Sponsored by OPIS
Sponsored by OPIS
Crude Oil and Natural Gas
Exploratory and Development Wells,

20
Sponsored by OPIS
Drilling – Shale Gas Example
Contracts are for multiple rigs
Drilling
Hydraulic
Fracturing
Production
Equipment
20-30 days/well
$5-15MM
Pipelines
Time from data acquisition – 6 months to years, depending on the play
“Lifting” costs – get gas to the surface =
$13 per barrel of oil equivalent
Reproduced courtesy of the American Petroleum Institute, TRC State
Report
Sponsored by OPIS
A Taste of History
 1977 DOE demonstrates massive hydraulic
fracturing in Colorado
 1980’s Horizontal drilling achieves commercial
success
 1991 Mitchell Energy drills their first shale
horizontal well
 1997 Mitchell Energy achieves first commercially
successful combination of horizontal drilling and
hydraulic fracking in Barnett Shale, Texas

21
Sponsored by OPIS
Monthly Shale Production
Sponsored by OPIS
Fuels/Diluent
Power
Distribution
Local Gas
Distribution
Independent
Power
Generation
Gas
Storage
Transportation
Gas
Gathering
Exploration &
Fractionation &
Splitting
Upstream
Midstream
The Value Chain
Res/Com
Markets
Industrial
Markets
Refined
Products
Industrial
Markets
Product
Storage
Refinery
Transportation
Downstream
NGL
Transportation
Forecasts & Supply

22
Sponsored by OPIS
Forecasted to Current Natural Gas Prices
0
1
2
3
4
5
6
7
8
Jan04,2010
Mar04,2010
May04,2010
Jul04,2010
Sep04,2010
Nov04,2010
Jan04,2011
Mar04,2011
May04,2011
Jul04,2011
Sep04,2011
Nov04,2011
Jan04,2012
Mar04,2012
May04,2012
Jul04,2012
Sep04,2012
Nov04,2012
Jan04,2013
Mar04,2013
Current & Past Year
Performance
Sponsored by OPIS
US Natural Gas Consumption

23
Sponsored by OPIS
Self-Correcting Market for Processing
NGL Prices
Increase
More C2 in NGL
Too much C2,
C2 Prices Decrease
C2 Rejection in Sales Gas
C2 Production Decreases
NG Supply Increases
NG Supply Decrease
E&P Shut ins &
Curtailments
NG Supply Decreases
NG Supply Decreases
NGL Supply Decreases
Sponsored by OPIS
Upstream Producer & Gas Processing Decisions?
 At low gas price levels, producers face choices
on whether or where to drill
 Reduced drilling affects gas supply
 Expected NGL revenue can support continued
drilling and support supply growth even at low
price levels

24
Sponsored by OPIS
Total Rigs & Spot Prices
927 rigs as of 10/14/2011 to 415 rigs as
of 10/19/2012, Baker Hughes' survey.
Sponsored by OPIS
North America Shale Play
Shale Activity
in 2000

25
Sponsored by OPIS
Production Capabilities and the Ability To Move
Supplies Onto The Interstate Network
 Identification of the major producing areas:
 Recent levels of development and production
 Expansion possibilities
 What interstate pipeline systems access the area?
 What are their capabilities (capacity) to receive supplies?
 Indications of capacity constraint?
 Measures being taken (if any) to resolve the problem
 To what degree are storage and support facilities
integrated?
Sponsored by OPIS
Bottleneck’s Overcome
 Y-Grade Transportation –
 Mid-Cont. to Belvieu, Rockies to Belvieu, W. Texas to Belvieu.
 Conway bottleneck resulted in NGLs to sell at a significant to discount
to Belvieu.
 Fractionation at Mt. Belvieu – Need for more full-fractionation
capacity being added.
 NGL Bulk Storage – lack of adequate storage in mid-con and
brine constraints at Mt. Belvieu can cause upcoming issues with
new lines reaching it.
 Rich shale play are being developed producing more
NGLs has requires increasing:
 Gas Processing capacity, y-Grade transportation, and
fractionation.
 But trouble brews as
 NGL Storage – will present continued challenges.
 Marcellus/Utica – will present continued challenges including NGL
product distribution and use.

26
Sponsored by OPIS
NGL Pipeline Corridors Link Major Processing Regions to
NGL Markets
NGL Market Centers
(Storage, Fractionation
or Pipelines)
Rocky
Springs
San Juan
Anadarko
Permian
Gulf Coast
& Offshore
Arkhoma
South
Texas
Marcus
Hook
Apex
Seikirk
Chicago
Pine
Bend
Existing and New
NGL Raw Mix Flow
New & Exisitng
NGL Product Flows
For a copy og NGL/LPG Map: Hardcopy
http://www.pennwellbooks.com/lppifamapofu.html
Sponsored by OPIS
NG Processing Plants
Source: eia

27
Sponsored by OPIS
Transmission of Gas Along The Major
Natural Gas Transportation Corridors
 Major corridors delineated
 For each corridor
 Major expansions and new pipelines
 Identify pipeline systems per corridor
 Current capabilities and utilization levels
 Indications of service bottlenecks
 Amount and type of underground storage serving shippers
 Market centers/hubs and their role within the corridor
 Expansion possibilities
 For the network as a whole: Overall capacities/usage
growth.
Sponsored by OPIS
Natural Gas Pipelines in the US

28
Sponsored by OPIS
Dig Down to Plant Level NG Processing
Sponsored by OPIS
Engineering Process Flow Diagram
Photo: United States Dept. of Transportation
NGLs enter as
part of the inlet
gas stream.
NGLs
separated and
exit.

29
Sponsored by OPIS
How do we decide Ethane and NGL
from a Plant to make $$$?
 Quality -The gas composition has a major
impact on the economics of NGL recovery and
the process selection.
 Energy content of the inlet gas from the well in
BTU.
 Found by Composition of stream – online gas
chromatographs tells us each component and how
much is of it is in the gas.
 Composition - Converting between volumes of gas and
volumes of liquid for NGL processing starts with the mole
Sponsored by OPIS
How do we decide Ethane and NGL from a Plant
to make $$$?
 Composition - Converting between
volumes of gas and volumes of
liquid for NGL processing starts with
knowing the moles. Gas
Chromatographs provide this.
 Each hydrocarbon has a “Gallons
per Pound Mole” factor, abbreviated
as “gal/lb-mol”

30
Sponsored by OPIS
 Quantity – How much of gas coming in
 Each plant has its own maximum amount of gas
it can accept and process
 Online Flow Meters - Volume of gas in cubic feet. It
is reported in cubic feet per day.
 Typical measurement units you hear are thousands of
cubic feet (Mcf), millions of cubic feet (MMcf), or billions of
cubic feet (Bcf).
 In our US Oil & Gas World we use M=1,000, and millions by
MM = 1,000,000
How do we decide Ethane and NGL from a Plant
to make $$$?
Sponsored by OPIS
Overall Steps Estimating NGL Production
Volume
 Obtain plant inlet gas composition
 Estimate the gas volume (Mcf) to be processed
 Determine NGL content (gas quality) per Mcf of
gas to be processed
 Reported as GPM - Gallons per MCF, or gallons of
NGLs per thousand cubic feet of natural gas.
 Understand plant’s NGL maximum recovery
capability and decide on ethane in NGL

31
Sponsored by OPIS
Step 1 – Inlet Gas Volume Estimate for the Plant
 Relatively constant over time in proven fields.
 Production forecast from the gas producer(s)
 Gas volume available to a plant depends on
 Drilling in the area
 Commitments by the producer to the plant:
 “Area of Mutual Interest” – defined geographic
boundaries which the plant will be able to process
gas from
 Specific wells or leases
 Competition from other processors
 Small field NGL “knockout” units
 Other plants in the area and lines connecting it.
Sponsored by OPIS
Step 2 – NGL Content -> Gas Quality
 An online gas chromatograph and verified daily by
an independent lab analysis of the gas taken by the
producer/supplier provides composition
 A gas with a greater quantity of liquefiable
hydrocarbons produces a greater quantity of
products and hence greater revenues for the gas
processing facility.
 Richer gas also entails larger refrigeration duties, larger heat
exchange surfaces and higher capital cost for a given recovery
efficiency.
 Leaner gases generally require more severe processing
conditions (lower temperatures) to achieve high recovery
efficiencies.
 Gas that contains a low percentage of NGLs is called “dry” or “lean” gas.

32
Sponsored by OPIS
NGL GPM Factors – Conversion Table
Component
HHV
BTU/cf
Ft3 gas
(cf)/Gal liq
Gal/mol
Gal per Mcf
GPM
Carbon
dioxide
0 59 0 0
Nitrogen 0 91 0 0
Methane 1010 59 0 0
Ethane 1769.6 37.48 10.148 26.68
Propane 2516.1 36.38 10.433 27.48
I-Butane 3251.9 30.64 12.386 32.64
N-Butane 3262.3 31.80 11.937 31.45
Natural
gasoline*/C5+ 4000.9 24.38 13.7 36.16
Source: Numbers are also from GPA Standard 2145-09
Sponsored by OPIS
64
Step 3 – Calculate the NGL Content in
the Gas
 NGL Yield metric = “GPM” (Gallons Per Mcf) = Number of gallons of NGL
contained in 1,000 cubic feet of gas! GPM = Mole fraction*Gal/mol*1000/379.49
Feed Gas Available
Component
Feed Gas
Mole %
Gal/Mol (The
Same for cases) Inlet GPM
Inlet
Gal/Day
Estimated
Recovery %
NGL
Gal/day
N2 1.000% 0
CO2 3.000% 0
C1 85.00% 0
C2 5.90% 10.148 1.578 520650 90 468585
C3 3.00% 10.433 0.825 272172 98 266729
i-C4 0.70% 12.386 0.228 75395 99 74641
n-C4 0.80% 11.937 0.252 83042 99 82212
i-C5 0.30% 13.86 0.110 36157 100 36157
n-C5 0.20% 13.713 0.072 23849 100 23849
n-C6 0.20% 15.566 0.082 27072 100.000
MMSCFD 330.00 Total GPM = 3.2 0.000 952,174

33
Sponsored by OPIS
Maximum GPM Calculation
 To calculate highest NGL extraction attainable
just a quick check.
 Volume (Mcf’s) of gas X Gallons per Mcf = total
gallons NGL
 Example
 330,000 Mcf gas X 3.2 GPM * 100% = 1,038,339
gallons NGL of the HHV.
 Just as “good” with 10% of actuals
Sponsored by OPIS
NGLs GPM (gal per Mcf)

34
Sponsored by OPIS
New Sources of NGL Supply
Sponsored by OPIS
68
Typical Gas Type To NGL GPM
Gas Type Characteristics
NGL Yield
Range “GPM”
Associated Produced with 0il 5-12
Gas & condensate
Mostly gas with some
heavier hydrocarbons 2.5-4
Gas well gas
Mostly gas; possibly
high ethane 1.5-2
Coal bed methane Methane, some water Trace or none
Shale gas can actually range from 1.5 to over 7 GPM depending on the formation

35
Sponsored by OPIS
Shrinkage and Plant Economics
 The conversion of a substance in its gaseous form to a
substance in its liquid form is called condensation.
 Condensing a cubic foot of ethane gas into ethane
liquid produces a different volume of ethane liquid
(gallons) and different than propane.
 Energy Balance - This change into liquids results in a gas
“shrinkage” and reduction of the energy content of the gas.
 Higher Heating Value – HHV - Each NGL product has a
different heat content or BTU factor per volume of
liquid.
 The value of the NGLs in $/gal versus the value of the
components in the residue gas in $/gal or the “spread”
between these values is the primary economic criteria for
NGL recovery project
Sponsored by OPIS
For Our Natural Gas Example Our $$$ Loss for
the Plant
If sales gas specifications is set the minimum
HHV at 950-1000 BTU/scf, what is the
shrinkage cost at $4/MMBTU?
Shrinkage Calculation
Component
Feed Gas
Mole % Residue Gas Mole %
HHV
BTU/scf
Feed Gas
BTU/scf
Residue Gas
BTU/scf
N2 1.000% 1.15% 0
CO2 3.000% 3.35% 0
C1 85.00% 94.81% 1010 858.5 957.5608
C2 5.90% 0.65% 1769.600 104.4064 11.449312
C3 3.00% 0.07% 2516.100 75.483 1.685787
i-C4 0.70% 0.01% 3251.900 22.7633 0.260152
n-C4 0.80% 0.00% 3262.300 26.0984 0
i-C5 0.30% 0.00% 4000.900 12.0027 0
n-C5 0.20% 0.00% 4008.900 8.0178 0
n-C6 0.20% 0.00% 4755.900 9.5118 0
Total 1117 971
Shrinkage Value
= [(330 • 1117) – (295.862 • 971.24)]
• $2/MMBTU = $325,028/day
Source: Numbers are also from GPA Standard 2145-09

36
Sponsored by OPIS
Why is “Shrink” Cost Important?
 The plant and producer have a contract for the
processing of the producer’s gas
 The producer pays the plant for processing
 The processing fee may be dependent on the
amount of NGL that is recovered
 Producer may want to get back the Mmbtu
equivalent of the gas that was recovered as NGL as
part of the processing contract
Sponsored by OPIS
72
Shale Plays Influencing How Midstream
Services Are Contracted
Oil & Gas Producers are becoming more exposed to NGLs:
 Improve NGLs to markets delivery
 NGL bottlenecks can influence oil & gas production
Midstream companies more focused on getting their
facilities contractually full than physically full.
Midstream companies are exercising greater leverage over
producers -- “transport or pay” and “frac or pay” contracts.
Implications of “transport or pay” and “frac or pay” contracts.
 We have seen the drive to “over” build NGL infrastructure.
 Producers could have to keep extracting ethane at a loss to avoid
paying penalties when ethane extraction economics are not
favorable.

37
Sponsored by OPIS
Processing Agreements Minimize
Cost Risk Exposure
Highest Risk to Processor Lowest
Keep
Whole
Margin
Sharing
% of Liquids
(POL)
% of Proceeds
(POP)
Processing Fee
Processor keeps
extracted NGLs
as fee for
processing
Must purchase
and return to
producer
merchantable gas
to replace fuel &
shrinkage
Producer and
processor share
value delta
between NGLs
and gas, i.e..
50%/50%.
Processor paid a %
of NGLs and dry gas
as processing fee.
Producer keep their
% of NGLs in kind or
have processor sell
NGLs and receive
cash.
Could have keep
whole provisions
Processor paid a %
of NGLs & dry gas
as processing fee
Producer keep their
% of NGLs & gas in
kind or have
processor sell
NGLs & gas and
receive cash.
Could have keep
whole provisions
Producer pays
processor a
processing or
conditioning fee.
Fee is market base
and could be POL or
POP or cash.
Lowest Risk to Producer Highest
Sponsored by OPIS
“Keep (Producer) Whole Contract Issues
 Advantages
 Highest margin when frac spreads are high
 Disadvantages
 Very volatile; not suitable for MLP’s needing steady
cash flow to service debt or make distributions
 Used when
 Gas has a high NGL content and someone is willing
to accept price volatility risk
 The producer insists on receiving at least the
equivalent gas value for its NGL’s (typically an issue
for ethane)

38
Sponsored by OPIS
 Most common type of contract
 Often include a “floor” to provide for a fee to condition gas to
meet pipeline specs when processing margins aren’t favorable
 Under POI - the higher the price of natural gas and NGLs the
stronger the processors margins will be.
 Advantages
 Shares processing margin risk between gas supplier and
processor
 Plant is more likely to run most of the time vs. bypassing
when processing margins are low
 Provides more stable cash flow
 Disadvantages
 Processor gives up upside during high margin intervals
% of Proceeds
Sponsored by OPIS
Other Contract Types
 “Fee Based” contract
 Processor/plant receives a fee for service typically based on the
throughput volume (Mcf). Fees can be changed for compression,
treating, gathering and blending the producer’s gas with other gas
to meet pipeline specifications when processing margins aren’t
sufficient to justify operating the plant for NGL extraction
 Natural gas prices undergo a sustained downturn, drilling may slow
which causes throughput to decrease
 “Fixed Efficiency” contract (modified % of proceeds)
 The processor/plant and the producer agree on an NGL recovery
level as a threshold. If the plant runs at a higher efficiency level
than the contract minimum the processor receives the additional
revenue. For example, a contract could state that the plant will
recover 70% of the ethane and 95% of the heavier components.
The producer will be paid for these recoveries and the processor
gets any NGL over and above that amount

39
Sponsored by OPIS
 Advantages
 Downside protection in regions where processing margins
can be low (lots of competition, low NGL content gas, etc.)
 Provides recovery of operating costs when pipeline requires
gas to be processed even if margins are negative
 Disadvantages
 No upside; risk if costs rise faster than the fee
 Used when
 Lender or investor requires stable cash flow
 Contracting for low NGL gas
Contract Issues – Fee Based
Sponsored by OPIS
 What would the revenue of the Processor and
plant given
 Total NGL Revenue = $70,000
 Shrink value = $ 8,000
 Frac Spread is $ 45,555

40
Sponsored by OPIS
Income Statement –Producer Payments
Contract
Type
Plant Revenue
NGL Sales
Producer Payment
Plant’s Gross
Revenue
Before OPEX
Keep Whole $70,000
Gas value of Shrink =
$ 8,000
$62000
Margin
Sharing
$70,000
50% of Frac Spread =
$22,777.5
$22,777.5
% of Liquids
(POL)
$70,000 X 15%
(example) = $10,500
85% of Liquids =
$59,500
$10,500
% of
Proceeds
(ex 85/15)
15% NGL = $10,500
15% Gas = $ 2,400
85% of NGL and Gas
Revenue
$ 10,965
Fee
10,000 X $.20/Mcf =
$2,000 (just numbers
example)
None $2.00
*15% of 12,445 Mmbtu total, less 4,415 “Shrink”at April 2012 gas price of $1.98/Mmbtu
Sponsored by OPIS
The Agreements arent enough!
Hedge on NGLs!
Source Data: OPIS
The most common NGL hedging instrument is a
swap.
E&P companies often utilize ethane and propane
swaps in order to fix their revenues and/or cash
flow.
Many midstream companies employ swaps to
lock in their profit margins.
Example: You are a Permian Basin E&P
Producer you see the curve:

41
Sponsored by OPIS
Today
Forward curves tell processors what costs
to plan for and, depending on the level and
volatility of the forward curves, whether or
not to hedge
Sponsored by OPIS
Hedge on Ethane
Source Data: OPIS
20,000 barrels is your contracts and anticipated
Feb 2013 ethane production.
You had decided sell it as an OPIS Mont Belvieu
ethane swap in Dec 2012 @ $0.68 per gal to
your bank's energy hedging desk in.
In January 2013 the OPIS Mont Belvieu ethane
price remained constant at $0.2354 per gal.
If you sold the hedge today you would make
money. (0.68-0.2354)*20,000 barrels * (42
gallons/bbl) = $373,464.00

42
Sponsored by OPIS
Natural gas commercial net long positions against
and Natural Gas Futures Price
: If natural gas and crude oil prices continue to decline
hedging offers a limited, short term safety net to investors.
Sponsored by OPIS

43
Sponsored by OPIS
Shift Focus to Ethane
 Major NGL component – constitutes 37% of the US NGL barrel.
 Yields have fluctuated from 34% to 46% when processing economics
dictated.
 Ethane extraction mostly discretionary - sensitive to economic
conditions. The others come out with ethane or have to high
energy.
 Acts as the “canary in the mine shaft” - strong ethane frac spreads
indicate a strong processing environment - especially for cryogenic
plants.
 Ethane has only one major end use - ethylene feedstock, competing
with other NGL & petroleum feedstocks.
 Ethylene industry needs ethane - constitutes 45% of their feedstock
mix.
Sponsored by OPIS
Shale is the Game Changer

44
Sponsored by OPIS
Petrochemical Value Chain
NGL
Crude
Company Billion
$/year
BASF 72.66
Dow
Chemical
44.88
ExxonMobil 40.98
Sinopec 31.37
Lyondell /
Basel
30.83
Shell 27.56
SABIC 27.48
Mitsubishi /
Chemical
27.13
DuPont 26.11
INEOS 25.91
Sponsored by OPIS
Petrochemical Plants

45
Sponsored by OPIS
PFD of Ethane Steam Cracking
Sponsored by OPIS
Distillation Columns at end PFD
 3 Total Columns for
500Mtonnes/year C2
 8 stage de-methanizer
 10m high
 3m diameter
 20 stage de-ethylenizer
 15m high
 3m diameter
 40 stage de-ethanizer
 27m high
 3m diameter

46
Sponsored by OPIS
What are Key market drivers influencing
ethane cracking and extraction?
 Ethane Cracking
 Ethylene business cycles
 Cracker capacities &
 feedstock capabilities
 Competing feedstocks
 Ethylene co-products
 Derivative Imports/Exports
 Ethane Extraction
 Frac spreads
 Processing contracts
 Plant type
 Plant location
 Gas quantity & quality
Note: If the ethane supply in the US increases by
25%, it is reasonable to assume that, all things
being equal, ethylene supply will also increase by
25%.
Sponsored by OPIS
NGL Component Spot Prices
In the United States, over 85% of ethylene, for example, is derived
from natural gas liquids while in Western Europe over 70% is derived
from naphtha, gas oil and other light distillate oil-based products.

47
Sponsored by OPIS
Price of Oil and the Price of Western Europe
Naphtha
Sponsored by OPIS
Price of Oil, Natural Gas and the Price of NGL
CRS Report for Congress, www.crs.gov, R42814

48
Sponsored by OPIS
Steam Cracker Feeds Categories
 Natural gas liquids (NGLs) are composed essentially of
ethane, propane and butanes. Methane is directly
converted into methanol and ammonia.
 Full range naphtha (FRN) is thought of as any
hydrocarbon that boils in the gasoline boiling
rangeNaphtha is a generic term for hydrocarbon mixtures
that distill at a boiling range between 70°C and 190°C. .
 Light or paraffinic naphtha is the preferred feedstock for
steam cracking to produce ethylene, while heavier grades
are preferred for gasoline manufacture.
 Gas oils are classified as either atmospheric or vacuum
according to their origin, either from an atmospheric crude
tower or a crude bottoms vacuum column. Atmospheric
gas oil material boils in the range 400-800 °F (204-427
Sponsored by OPIS
Ethane Competition in Market
 Ethylene for Plastics; petrochemical feedstock
Propane
N-Butane
Naphtha
Gas Oils
Retained in NG for BTU
Residual Fuel
No 2 Fuel Oil
Propane
Sales Gas BTU Limitation

49
Sponsored by OPIS
Ethane Supply & Demand has Two Primary drivers
Primary Driver Rational Influence
Natural Gas to Crude
Price Ratio
(Henry Hub Gas/Cushing
WTI on a BTU basis)
Gas sets price floor for
ethane and petroleum
derived feedstocks set
the market price.
Processing
Margins
Feedstock
Economics
US Ethylene
Production (as
driven by GDP
growth)
US ethylene industry
consumes virtually all of
the ethane extracted
from natural gas.
The amount of ethane
consumed should
increase as ethylene
production increases.
But, co-products can
affect ethane cracking.
Both being
inversely
related to
the gas to
crude price
ratio
Sponsored by OPIS
Ethane in Natural Gas Competiveness Comes
Back
Source: EIA, DOE
US natural gas prices were
low and oil prices were high.
Non-competitive ratio of 5.5:1 in 2003
6.3:1 in 2005 to 15.9:1 in 2009
Competitive ratio of 17.9:1 in 2010

50
Sponsored by OPIS
Feedstock to Crude Oil Prices
Source: EIA, DOE
The relative price of U.S. ethane (as a percent
of crude oil price) decreasing due to cheaper
U.S. natural gas
Sponsored by OPIS
Midwest Advantage

51
Sponsored by OPIS
So Ethane to Cracking is Good?!
 A tighter crude market keeps gas to crude price
ratios below 90%.
 As ethylene production grows, ethane cracking
increases and the flexibility to switch off ethane
diminishes.
 Ethylene producers need to closely track the
regional shift in ethane supplies.
 Ethane frac spreads should remain strong to
encourage extraction – next topic to cover.
Sponsored by OPIS
Frac Spreads – The Midstream Economic Meter
 Frac spreads is good indicator of the relative health of natural gas processing
over time. The wider the spread, the more favorable the market for natural gas
processors.
 There are a variety of approaches to calculating the Frac Spread, but we will
use the basic approach – The difference between the cost of gas (processing
input) and its value in NGL form (processing output).
Frac spread = (weighted average of NGL Value) – Cost of
Natural Gas
 Frac Spread does not consider the liquids content of gas processed
 These spreads are an industry telltale when watching processing economics.
 If frac spreads are positive, the MMBtus are more valuable in NGL form.
Processors should recover ethane – take out of gas put into NGL.
 If frac spreads are negative, the MMBtus are more valuable in gaseous
form. Processors should reject ethane – keep it in the gas.

52
Sponsored by OPIS
Calculating Frac Spread
NGL Price on 4/2/2012 Price Price
vol % Component Cents/gal US$/gal MMBTU/Gal $/MMBTU $/MMBTu
42% Ethane 47.310 $ 0.27 0.06650 $ 7.11 $ 2.81
28% Propane 120.880 $ 0.87 0.090900 $ 13.30 $ 3.98
11% Normal Butane 205.75 $ 1.82 0.102930 $ 20.80 $ 2.01
6% Isobutane 187.810 $ 1.64 0.098935 $ 18.25 $ 1.36
13% Natural Gasoline 239.750 $ 2.25 0.110100 $ 21.78 $ 2.93
100% $ 13.09
Natural Gas ($/MMBTu) 2.15
$ 10.94
Sponsored by OPIS
Mont Belvieu Ethane Frac Spread
Source: OPIS

53
Sponsored by OPIS
Low Price for Natural Gas Affects Drilling
Previous Slide:
If frac spreads are positive, the MMBtus
are more valuable in NGL form.
Processors should recover ethane –
take out of gas put into NGL.
Sponsored by OPIS
Ethane and Frac Spread Headed Down?
 The Frac Spread wont continue downward as
NG price remain low but level off.
 The crude forward curve shows prices rising
during 2013 in response to the Seaway and
Keystone pipelines bringing additional crude to
the Gulf.
 Storage levels may still be at an all time high but
are have leveled out.
 Production volumes have held constant

54
Sponsored by OPIS
U.S. Natural Gas Marketed Production 1900 to
2012
Source EIA
Sponsored by OPIS
Ethane to Continue Dominance
 Advantaged feedstock price position due to
Shale development
 Separation of crude and natural gas valuation
enabled NGL’s, especially ethane, to become
advantaged
 Provides low cost position relative to most of
world, supports exports
 Strong ethylene demand and operating rates
 Attracting massive investment

55
Sponsored by OPIS
Ethane or Naphta?
Sponsored by OPIS
Continued Great Environment for Ethane as long as crude
prices stay high.
Ethane Cracking Swings
Between 500 -700 MBPD Are
Possible with a Bias to
Maximize Ethane Cracking
High Probability of Ethane
Cracking Swings Between 500
-700 MBPD with a Bias to
Minimize Ethane Cracking as
long as Co-Product Production
is Not an Inhibitor
At 53-55 B Lb/yr, Moderate to
Good Probability of Ethane
Cracking at or above 650
MBPD. Gas to Crude Ratio Less
of a Factor at Production Rates
above 55 B Lb/yr
GastoCrudePriceRatio
AtorBelow90%Above90%
Ethylene Production
Below 53 B LB/YR Above 53 B LB/YR
High Probability of Sustainable
Ethane Cracking at or Above
650 MBPD

56
Sponsored by OPIS
Recent and Planned Natural Gas Infrastructure
Additions
Source: Federal Energy Regulatory Commission, February 2012
Sponsored by OPIS
NGL Value in Remote Locations
 NGL value outside a market center (“hub”) depends on:
 Price at the hub to which the product can move
 Cost to move the NGL to the hub (transportation)
 The “netback” value of a given location is the value at
the hub where it can be sold less the cost of
transporting and fractionating to marketable products
 The “netback” price - often the basis for revenue paid to
the gas producer and the gas processing plant

57
Sponsored by OPIS
Tariffs for Product Shipments (The “T” in “T&F”)
 Cost to ship NGL’s via pipeline depends on:
 Contract terms
 Posted tariff
 Interstate pipelines are deemed to be common carriers
and are required to file rates and terms of service with
the Federal Energy Regulatory commission (FERC)
 FERC regulates both gas and NGL pipelines, but they
are treated differently
Sponsored by OPIS
FERC Regulations – Gas vs NGL Pipelines
 Gas pipelines governed by the Natural Gas Act of 1938
 NGL pipelines governed by the Interstate Commerce Act
of 1887
 With regard to gas pipelines, FERC role is:
 Rates – has oversight and approval authority
 Permission to build, buy, sell or abandon a line
 With regard to oil pipelines, FERC is concerned with:
 Protecting producers from monopolistic practices by pipelines
 But
 Does not have to approve rates
 Does not have to give permission to build, buy, abandon lines
UNLESS the pipeline wants the right of condemnation for right of way

58
Sponsored by OPIS
How Tariffs Work for NGL Lines
 NGL lines don’t have the same rules as gas lines with
regard to setting tariffs:
 Gas lines can negotiate a rate different from their posted tariff
 Oil lines were intended to operate as “one price for all”
systems to avoid favoritism
 Rates are stated outright vs minimum and maximum
 Limited ability to negotiate rates other than for volume & term
 More certainty around the rates for NGL lines in terms of
the fee
Sponsored by OPIS
NGL Pipeline Transportation
Tariff Rates Example
Source: http://www.enterpriseproducts.com/customers/tariffs.shtm

59
Sponsored by OPIS
Integrated “Processing or Recovery” &
Fractionation Plants
 NGL recovery and fractionation are on the same site
 Usually smaller plants – 2,000 to 35,000 BPD of NGL output
 Regional market is available to buy some or all of the products
 Often have truck and/or rail racks
Sponsored by OPIS
NGL Supply Overview – North America
C2 C3 IC4 NC4 C5+ Total
U.S. Gas Plants 945 630 202 180 292 2,249
U.S. Refineries (net) 31 329 (1) 63 198 620
Canada-Gas Plants 235 155 42 46 151 629
Canada- Refineries 20 27 26 30 (Note 1) 103
Total U.S./Canada
Gas Plants
1,070 718 226 194 421 2,878
Totals U.S. Canada
Refineries
51 356 25 93 (Note 1)
000 BPD
Note 1 – Canadian refinery surplus (“production”) is not shown; assuming that all
this material is used internally; US refinery numbers are net of internal demand
Sources – EIA; Canadian National Energy Board;

60
Sponsored by OPIS
LNG NGL
C2/C3
C4/C5
N2
Trace
H2S
C1
85% Min
97% Max
C5 Plus
C2
C3
C4
95%
Butane
≤ 5%
LPG
Propane
95% *
* Combo VP ≤205 RVP (100F) pressure limits
Sponsored by OPIS
U.S. NGL Production, 2009-2012

61
Sponsored by OPIS
Refinery LPG Balances
United States Summary
1Balance reported in government statistics – ie, the number
that shows up “outside the fence” as reported supply
external to plant operations.
C2 C3 IC4 NC4
Production 152 301 628 487
Purchases 191 122
Consumption:
Fuel Gas (29) (23)
Chemicals (92) (68) (60)
Isomerization (92)
Alkylation (752)
Gasoline Blending (394)
Net Balances1 31 278 (1) 63
Sponsored by OPIS
Propane Distribution

62
Sponsored by OPIS
Refinery
Operations
Sponsored by OPIS
Fluid Catalytic Cracking’s Importance to NGL/LPG Markets
 FCC’s are a major source of propane supply
from refineries:
 Purity propane is removed from the gas coming
off the top of the unit (“off gas”)
 Purity propane is produced by splitting refinery
grade propylene (RGP)
 Refinery Grade Propylene – typically a 60-65%
propylene/30-35% propane mix:
 Usually sent to another location to be separated
into propane and propylene for chemical markets

63
Sponsored by OPIS
Alkylation Unit (“Alteration” Process)
 Combines a catalyst with
olefins (butylenes, iso-
butylenes, propylenes) &
iso-butane – by-product is
purity propane and butane
 Rearranges the molecular
structure of the olefins to
produce alkylate, a high
quality gasoline blendstock
Alkylation Complex
Sponsored by OPIS
Ethylene plants with feedstock flexibility
Ethylene Propylene C4 Olefins Fuel Gas
Ethane 80% 2% 2% 14%
Propane 46% 15% 3% 28%
Normal Butane 37% 18% 8% 24%
Naphta 29% 17% 9% 20%
Gas Oils 25% 15% 10% 20%
Cracking one feedstock over another is dependent on
feedstock cost and on the value of the co-products
produced from each feedstock

64
Sponsored by OPIS
 General LPG Volume Estimate (Propane and Butanes):
 Use 10% of total crude throughput:
 Ex: Shell Deer Park = 329,800M BPD crude capacity
 Total LPG (propane and butanes) = 10% total “runs to stills
= 329,800 * 10% = 32,900 BPD
 Propane portion of the LPG barrel is approximately 25% of total
LPG = 32,900 * .25 = 8,225 BPD (2.5% of crude throughput)
 Best numbers come from refinery process models
 Plant specific – need crude composition and process technology information
 Plant - Specific Balances – manual method
 Use unit capacity information and estimated yields data from industry
handbooks to calculate totals
Volume Forecasting Techniques
Sponsored by OPIS
 Propylene prices:
 High propylene prices will increase demand for propane by
ethylene crackers if refinery propylene supply is reduced
 Refinery propylene value based on relative price between
selling as propylene in the chemical market compared to
converting to alkylate and using in gasoline blending
 Refinery grade propylene requires splitting to separate the
propane from the propylene for separate sale
Propane Market “Signals” to Watch

65
Sponsored by OPIS
Outlook For Propane Supply & Demand
 Propane supplies driven by gas processing
growing
 Refinery supplies remaining relatively constant.
 Ethylene feedstock demand for propane will be
declining offset by rising dehydrogenation
demand for propane.
 Fuel demand for propane slowly declining.
 The export market will compete for the
incremental propane barrel.
Source: EIA,
Sponsored by OPIS
Petrochemical Plants
Iowa
Clinton: Olefins, Polyethylene
Illinois
Morris: Olefins, Polyethylene
Tuscola: Olefins, Polyethylene
Louisiana:
Lake Charles: Polyethylene
Texas:
Bayport Polypropylene
Channelview Olefins
Chocolate Bayou Polyethylene)
Corpus Christi Olefins
La Porte Olefins, Polyethylene)
Matagorda Polyethylene
Victoria Polyethylene
Ohio
Fairport Harbor Polyethylene

66
Sponsored by OPIS
Exports to Crude to Gas Ratio
Sponsored by OPIS
Monthly Volatility of First Futures Crude Oil
Contract Price
Estimates of the volatility of the adjusted daily returns
previously analyzed for WTI first-contract futures crude oil prices
- I did not consider externalities.
Gulf War (‘90-91) > Global economic recession (2008-2009)
Spikes calculated to be over 20%.

67
Sponsored by OPIS
Global Market Factors
 They are “Supply Driven”
 Supply growth is “lumpy” - added when energy prices are high
as a result of developing oil and gas reserves
 “Premium” demand (bottle gas ) grows more slowly than
supply – usually at GDP rate at best
 “Price sensitive” demand (aka chemicals) picks up the
surplus
 When the markets are oversupplied, prices fall until:
 Premium demand catches up with supply
 Chemical capacity expands enough to need the barrels as
baseload
 Producers reduce optional output, or production falls
Sponsored by OPIS
Need More Capacity

68
Sponsored by OPIS
Natural Gas Prices ($/MMBtu)
Sponsored by OPIS
U.S. Natural Gas Import/Export Locations,
as of the end of 2008

69
Sponsored by OPIS
Seaborne LP Export Regions
Sponsored by OPIS
Subsidies Distort Supply Profiles
 Many countries outside U.S. subsidize retail LPG prices
 When prices are high, LPG producing countries may
export for hard currency, even though domestic markets
could absorb the volumes
 Leads to increase in international LPG trade when
energy prices are high regardless of home population
size
 Can exacerbate long supply conditions and put pressure
on LPG due to barrels seeking markets elsewhere even
with strong local demand

70
Sponsored by OPIS
Waterborne LPG - Terminology
Terms:
“C & F” = Cost of Product (Cargo) & Freight charge
“CIF” = Cost of Product (Cargo), Insurance, & Freight
FOB = Free on Board (the point at which it’s in your
custody and you bear the risk of loss of the cargo)
Bunkers = Marine vessel fuel – can use high sulfur on open
water but most ports require low sulfur in the
harbor
Terminalling = Using the terminal operator’s equipment to load
and/or unload the ship
Loading a large cargo is expensive; refrigeration to liquefy it for
transit requires a chiller system and pumps; US Gulf Coast costs are
10 to 11 CPG
Sponsored by OPIS
WaterBorne

71
Sponsored by OPIS
Primary Trade Routes for Waterborne Shipments
The LPG that moves in the international cargo markets = 23% of global LPG
supply (propane/butane)
1
2
Sponsored by OPIS
Importance of Mont Belvieu to Global Markets
 Global clearing market
 Highest overall storage capacity
 2 offloading terminals
 Most transparent pricing
 But, from map you see the farthest distance for shipping
from most global sources
 Considered market of last resort unless price is right
due to distance from most other locations
 Currently economic for some buyers due to domestic
surplus

72
Sponsored by OPIS
Waterborne LPG – How Trades Work
 Seller can be a producer or government agency owning
part of the product under a production share agreement
 Buyers can be traders (GeoGas, Vitoil, Glencore), the
producer (Total, ExxonMobil, Shell Trading, BP, etc.) or an
end user (Ferrell, Dow, Amerigas, Sumitomo, KoGas, etc.)
 Buyer charters a ship and nominates a lifting “window” (the
interval when the ship will be arriving to load) a month or
more in advance even if the destination location is not
known.
 Final destination determined by comparing prices in
destination markets.
Sponsored by OPIS
Natural Gas Outlook

73
Sponsored by OPIS
Natural Gas Resources and Reserves
Source: Department of the Interior’s U.S. Geological Survey and Bureau of Ocean Energy Management (BOEM)
and U.S. Energy Information Administration.
Sponsored by OPIS
NG Supply Constant

74
Sponsored by OPIS
U.S. Natural Gas Prices
Sponsored by OPIS
Natural Gas Outlook
Price Forecasts Rising Prices to $5.50 In 2015;
US gas storage peaked out at a record 3.84 Tcf in the last few
weeks
 We saw projects make a return on capital at $4.00-5.00/Mcf
($4.5/Mcf average). So higher prices are good for processors.
 We saw recent price weakness caused a drop in the rig count but
lease holding issues and joint venture drilling have kept production
up.
 Demand for gas electric generation continues to look good as gas
replaces coal. Reversal or slow down possible if natural gas prices
move higher.
LNG exports expected to grow and help raise prices to forecasted
levels, but propane and butane demand decrease extensively during
summer and could counter LNG production increases by storage
shortage described in the upcoming slides/

75
Sponsored by OPIS
NGL Outlook
Sponsored by OPIS
Natural Gas Production Forecast
Source: EIA, Annual Energy Outlook 2011. Image by EIA.
 Shale plays - rapid rise
in gas and NGL
production since 2006.
 NGL extraction
increased 440 MBPD
(25%).
 Infrastructure expanded
to handle incremental
NGLs
 Previously, oil rigs have
overtaken gas rigs due
to the weak relative
value of gas.
 Why hasn’t rate of growth
of gas and NGLs slowed
or reversed?

76
Sponsored by OPIS
Primary Growth NGL is Ethane
Followed by Propane
Ethane/NGL : 33% 37% 39% 43%
Source: EIA
Sponsored by OPIS
What about NGL Storage?
 Major projects to add salt dome storage on the Gulf Coast
are limited:
 Targa - 2 to 4 NGL storage caverns at Mt. Belvieu and
adding brine pond capacity
 ONEOK - Mt Belvieu expansion of y-grade storage capacity .
 No major projects for salt dome storage expansions in the
Mid-Continent.
 Marcellus/Utica region has limited quality salt formations to
store NGLs.
 As more NGLs are produced, more stress is put on the
markets to efficiently absorb incremental NGLs
 2012 saw extensive NGL curtailment from Permian to Mt.
Belvieu.

77
Sponsored by OPIS
What about NGL Product Distribution?
 Gulf Coast fractionation capacity expanding by 1.047MMBpd
to absorb new lines being built
 Previously saw map showing new major NLG Product lines
from Mt. Belvieu to the Marcellus/Utica Region, Padd I
 Product distribution will become more challenging:
 Ethane distribution is still being developed.
 Storage is limited creating potential oversupply of propane and
butane during the summer months when major use of propane is for
heating - demand drops.
 If a y-grade line is not built to the Gulf Coast, then rail and truck will
remain primary form of distribution.
 Enterprise’s adding ethane header system -- Corpus Christi to
Norco.
 Williams’ ethane line – Mt. Belvieu to Port Arthur.
 A pipeline can carry oil equivalent to 1,600 truckloads a day
Sponsored by OPIS
Conclusions
 Mt. Belvieu becomes major market center as regional
transfers especially with new lines transporting raw mix NGLs
to it for fractionation and distribution.
 The “transport or pay” of “frac or pay” contracts could impact
ethane balancing when extraction economics are poor.
 Chances of continuance of NGL disruptions and imbalances as
storage is not significantly expanded.
 Marcellus/Utica will faces challenges to handle
summer/seasonal demand swings for propane and butanes
with new product lines and y-grade lines transporting it there.
 We saw greatest disruption to NGL and C2 value chain would
be a decrease in crude prices and/or a significant rise in gas
prices increasing the gas to crude ratio above 90%
 Storage and reserves significantly contribute to this likelihood.

Ngl fundamentals 102 matonis public release

Recommended

Recommended

More Related Content

What's hot

What's hot (20)

Similar to Ngl fundamentals 102 matonis public release

Similar to Ngl fundamentals 102 matonis public release (20)

Recently uploaded

Recently uploaded (20)

Ngl fundamentals 102 matonis public release