Natural Gas Processing Overview John Jechura – jjechura@mines.edu
Updated: January 18, 2016
Topics
• Energy consumption & natural gas’s place
 Natural gas sources
 Relationship with petroleum
• Basic economics of natural gas & NGL
 Trends for prices
 What are appropriate margins for the industry?
• Gas processing as part of total production system
John Jechura – jjechura@mines.edu
Updated: January 18, 2016
2
Topics
• Energy consumption & natural gas’s place
 Natural gas sources
 Relationship with petroleum
• Basic economics of natural gas & NGL
 Trends for prices
 What are appropriate margins for the industry?
• Gas processing as part of total production system
John Jechura – jjechura@mines.edu
Updated: January 18, 2016
3
Growth of U.S. Energy Consumption
120
15
Energy Consumed (Quad = 10 BTU)
100
80
Wood
Hydroelectric Power
Nuclear Electric Power
60
Coal
Natural Gas
Petroleum
40
20
0
1750
1800
1850
1900
1950
2000
Source: 1850‐1949, Energy Perspectives: A Presentation of Major Energy and Energy‐Related Data, U.S. Department of the Interior, 1975; 1950‐2010, Annual Energy Review 2011, Table 1.3. John Jechura – jjechura@mines.edu
Updated: January 18, 2016
4
World Energy Consumption by Source
• Growth will not be uniform among all energy sources
 Renewable & nuclear power projected to be fastest‐growing energy sources, increasing by 2.5% per year
 Natural gas fastest growing fossil fuel, increasing by 1.7% per year
 Coal grows faster than petroleum because of China’s increasing consumption
Source:
International Energy Outlook 2013, U.S. Energy Information Agency
http://www.eia.gov/forecasts/ieo/
John Jechura – jjechura@mines.edu
Updated: January 18, 2016
5
Energy Markets Are Interconnected
https://publicaffairs.llnl.gov/news/energy/energy.html
John Jechura – jjechura@mines.edu
Updated: January 18, 2016
6
Origins of Oil & Gas
• Organic life buried in sedimentary rock
• Transformation to hydrocarbons
• Migration from source rocks
• Accumulation of oil & gas
• Flow of oil & gas through porous media
John Jechura – jjechura@mines.edu
Updated: January 18, 2016
7
Petroleum & Natural Gas
• Consumption influenced by production & cost of fuels
John Jechura – jjechura@mines.edu
Updated: January 18, 2016
8
Flow of Natural Gas in U.S. (2008 Statistics)
Fundamentals of Natural Gas Processing, 2nd ed.
Kidnay, Parrish, & McCartney
John Jechura – jjechura@mines.edu
Updated: January 18, 2016
9
Overview of Natural Gas Gathering & Processing
Fundamentals of Natural Gas Processing, 2nd ed.
Kidnay, Parrish, & McCartney
John Jechura – jjechura@mines.edu
Updated: January 18, 2016
10
Unconventional Resources
• Petroleum & natural gas formed from decomposing organic matter in “source rock”
• Conventional – gas & liquids migrate through permeable rock toward the surface until it is stopped by some trapping mechanism
• Unconventional – gas & liquids are trapped at the source rock because of extremely low permeabilities
Dec. 5, 2012 update, http://www.eia.gov/energy_in_brief/article/about_shale_gas.cfm
John Jechura – jjechura@mines.edu
Updated: January 18, 2016
11
Shale Oil & Gas • Shale oil and gas have the potential to dramatically alter world energy markets
Source: Supplemental presentation is support of International Energy Outlook 2013, U.S. Energy Information Agency
http://www.eia.gov/forecasts/ieo/
John Jechura – jjechura@mines.edu
Updated: January 18, 2016
12
U.S. Gas Processing & Transportation
U.S. Energy Mapping System, retrieved January 10, 2016
http://www.eia.gov/state/maps.cfm?v=Natural%20Gas
John Jechura – jjechura@mines.edu
Updated: January 18, 2016
13
Capacities of Gas Plants in U.S. Lower 48
http://www.eia.gov/todayinenergy/detail.cfm?id=8530
John Jechura – jjechura@mines.edu
Updated: January 18, 2016
14
Topics
• Energy consumption & natural gas’s place
 Natural gas sources
 Relationship with petroleum
• Basic economics of natural gas & NGL
 Trends for prices
 What are appropriate margins for the industry?
• Gas processing as part of total production system
John Jechura – jjechura@mines.edu
Updated: January 18, 2016
15
Energy & Oil Prices
http://www.bloomberg.com/energy/
John Jechura – jjechura@mines.edu
Updated: January 18, 2016
16
Energy & Oil Prices
http://quotes.ino.com/exchanges/exchange.html?e=NYMEX
John Jechura – jjechura@mines.edu
Updated: January 18, 2016
17
Price Changes With Time
Sources: http://tonto.eia.doe.gov/dnav/pet/pet_pri_spt_s1_d.htm & http://www.eia.gov/dnav/ng/ng_pri_fut_s1_d.htm
John Jechura – jjechura@mines.edu
Updated: January 18, 2016
18
Price Changes With Time
Sources: http://tonto.eia.doe.gov/dnav/pet/pet_pri_spt_s1_d.htm & http://www.eia.gov/dnav/ng/ng_pri_fut_s1_d.htm
John Jechura – jjechura@mines.edu
Updated: January 18, 2016
19
No Such Thing as a “Global” Gas Price
http://www.slideshare.net/enalytica/gas‐market‐outlook‐lng‐business‐fundamentals
John Jechura – jjechura@mines.edu
Updated: January 18, 2016
20
NGLs Bring Value
Sources: http://tonto.eia.doe.gov/dnav/pet/pet_pri_spt_s1_d.htm & http://www.eia.gov/dnav/ng/ng_pri_fut_s1_d.htm
John Jechura – jjechura@mines.edu
Updated: January 18, 2016
21
NGLs Bring Value
Sources: http://tonto.eia.doe.gov/dnav/pet/pet_pri_spt_s1_d.htm & http://www.eia.gov/dnav/ng/ng_pri_fut_s1_d.htm
John Jechura – jjechura@mines.edu
Updated: January 18, 2016
22
NGLs Bring Value
Sources: http://tonto.eia.doe.gov/dnav/pet/pet_pri_spt_s1_d.htm & http://www.eia.gov/dnav/ng/ng_pri_fut_s1_d.htm
John Jechura – jjechura@mines.edu
Updated: January 18, 2016
23
Economic “Spreads”
• NGL / Frac spread
 Difference between the value of components in NGL vs. retaining in the natural gas
Frac Spread = (Value as liquid product) – (Value as component of natural gas)
 Can include value of mixture of C2, C3, iC4, nC4, & C5+
• Can be tailored to meet actual NGL compositions
• Some prices may be difficult to obtain on a daily basis
o
NYMEX C2, C3, nC4, & C5+ from www.ino.com
 Can be expressed as $/MMBtu (ideal gas heating value) or $/bbl (NGL volume)
• Make use of values for standard liquid density & heating value
• Spark spread
 More important to electricity producer rather than gas processor
 Gross margin of a gas‐fired power plant selling a unit of electricity having bought the fuel to produce it
John Jechura – jjechura@mines.edu
Updated: January 18, 2016
24
Example – Propane Frac Spread
• Using February values:
 Propane ‐ $0.34500 per gal
 Natural gas ‐ $2.472 per MMBtu
• Propane conversion factors:
 4.2301 lb/gal @ 60°F
 21,655 Btu/lb ideal gas gross heating value (based on 2,516.2 Btu/scf)
• Calculation:
Btu 

1,000,000


$  
$ 

MMBtu 


Spread   0.34500
2.472


gal  
lb  
Btu  
MMBtu 

4.2301
21,655



gal  
lb 

$ 
gal  
$ 

  0.34500
 10.917
   2.472


gal  
MMBtu  
MMBtu 

 $1.294 per MMBtu
Values retrieved January 10,2016
http://quotes.ino.com/exchanges/exchange.html?e=NYMEX
John Jechura – jjechura@mines.edu
Updated: January 18, 2016
25
Topics
• Energy consumption & natural gas’s place
 Natural gas sources
 Relationship with petroleum
• Basic economics of natural gas & NGL
 Trends for prices
 What are appropriate margins for the industry?
• Gas processing as part of total production system
John Jechura – jjechura@mines.edu
Updated: January 18, 2016
26
Total Production System
CO2 for EOR
Sales Gas to Pipeline
Gas Lift and
Injection
Crude Oil
Ethane
Propane
N-Butane LPG
I-Butane
Natural Gasoline
Plant Condensate
Sulfur
Gas
Processing
Module
NGLs
Field Condensate
Compression
(optional)
Field Treating
(optional)
Solution
Gas
Oil
Well
Production
Separators
Gas
Well
Production
Separators
Gas Cap or
Associated Gas
Oil
Gas
Well
Non-associated Gas
Water
Water
Water
J.M. Campbell & Company
Adapted from Gas Processors Association (GPA), Tulsa, Oklahoma
John Jechura – jjechura@mines.edu
Updated: January 18, 2016
27
Overview of Gas Plant Processing
Fundamentals of Natural Gas Processing
Kidnay, Parish, & McCartney, CRC Press, 2011
John Jechura – jjechura@mines.edu
Updated: January 18, 2016
28
Topics
• Energy consumption & natural gas’s place
 Natural gas sources
 Relationship with petroleum
• Basic economics of natural gas & NGL
 Trends for prices
 What are appropriate margins for the industry?
• Gas processing as part of total production system
John Jechura – jjechura@mines.edu
Updated: January 18, 2016
29
Supplemental Slides
• How do energy prices compare?
John Jechura – jjechura@mines.edu
Updated: January 18, 2016
30
How do energy prices compare?
Given Price
Heating Value
RBOB Gasoline ‐ wholesale 1.0735 $ per gallon 115,000 Btu/gal
LHV
Heating Oil ‐ wholesale 0.9855 $ per gallon 130,500 Btu/gal
LHV
WTI Crude Oil
31.13 $ per bbl
5.8 MMBtu/bbHHV
Brent Crude Oil
31.03 $ per bbl
5.8 MMBtu/bbHHV
Ethanol ‐ rack 1.3008 $ per gallon 75,700 Btu/gal
LHV
Natural Gas ‐ Henry Hub 2.15 $ per MMBtu
HHV
Propane
0.3269 $ per gallon 90,905 Btu/gal
HHV
Powder River Basin Coal (low sulfur) 9.70 $ per ton
8,800 Btu/lb
HHV
Illinois No. 6 Coal (high sulfur) 32.20 $ per ton
11,800 Btu/lb
HHV
Electricity (Residential, winter season)
4.604 ¢ per kWh
Electricity (Residential, summer, over 500 kW9.000 ¢ per kWh
Electricity (Commercial, winter season)
3.920 ¢ per kWh
Electricity (Commercial, summer season)
6.450 ¢ per kWh
Hydrogen dispensed cost 4.03 $ per kg
324.2 Btu/scf
HHV
Price [$/MWh]
31.85
25.77
18.31
18.25
58.63
7.34
12.27
1.88
4.66
46.04
90.00
39.20
64.50
102.20
Price Relative to [$/MMBtu] Natural Gas
9.33
4.3
7.55
3.5
5.37
2.5
5.35
2.5
17.18
8.0
2.15
1.0
3.60
1.7
0.55
0.3
1.36
0.6
13.49
6.3
26.38
12.3
11.49
5.3
18.90
8.8
29.95
13.9
References:
Gasoline, Heating Oil, & Crude Oil from Blomberg (1/14/216)
http://www.bloomberg.com/energy/ Ethanol price from NYMEX (1/14/2016)
http://quotes.ino.com/exchanges/category.html?c=energy
Coal from US EIA Coal News & Markets (week ending 1/8/16).
http://www.eia.gov/coal/news_markets/ Xcel Energy electric tariff book (as of 1/14/2016) http://www.xcelenergy.com/staticfiles/xe/PDF/Regulatory/CO‐Rates‐&‐Regulations‐Entire‐Electric‐Book.pdf
Hydrogen cost from DOE report, DOE Hydrogen & Fuel Cells Program Record, Sept. 24, 2012
http://www.hydrogen.energy.gov/pdfs/12024_h2_production_cost_natural_gas.pdf
John Jechura – jjechura@mines.edu
Updated: January 18, 2016
31