Gas processors eye contract changes to ease price spike impact


By the OGJ Online Staff


HOUSTON, Feb. 16
�US gas processors are considering modifications or additions to standard processing contracts to avoid or mitigate the impact of future gas price spikes, said analyst Daniel Lippe of Petral Cos.

In an article that will appear in the Mar. 12 issue of Oil & Gas Journal, Lippe said an unusual weather pattern from late November through late December caused a spike in gas prices that also caused substantial economic damage to gas processors and ethylene producers.

Data from the National Oceanic and Atmospheric Administration indicate December heating degree days were 10% higher than the 30-year average.

Petral estimated US gas demand was 83 bcfd in December or about 13 bcfd higher than in November and 8-10 bcfd higher than any December during 1990-1999.

Record withdrawals from inventory in early December pushed gas prices to $10/MMbtu, almost double what prices were in October. A break in the cold weather allowed prices to fall in January.

Lippe said by the second week in December, spot prices for all natural gas liquids (NGL) products were well below their BTU values vs. natural gas. Profit margins for gas processors on a spot/spot pricing basis had collapsed. And surging gas prices gave a clear signal that markets could easily absorb a substantial increase in gas volumes and BTU content.

The Energy Information Administration data indicate gas plant production was 1.93 million b/d in October. Petral estimated it fell to 1.6 million b/d in December and went as low as 1.5 million.

Petral estimated ethane output dropped 185,000 b/d and propane production dipped 60,000 b/d, accounting for two-thirds of the overall decline of 400,000 b/d.

It said ethylene production from LPG crackers averaged 1.96 billion lb in October and November but dropped to 1.73 billion lb in December and 1.4-1.5 billion lb in January.

Lippe said the gas processing industry normally recovers about 1.9 million b/d of gas liquids when operating at full recovery levels. But when gas processing margins collapse, the liquids become much more valuable as natural gas.

He said NGL production volumes are equal to about 6 bcfd on a standard dry natural gas basis. Gas plant production volumes of ethane and propane alone are equal to about 4 bcfd of dry gas production, based on a standard btu content of 1030 btu/cu ft.

When many gas plants were closed in mid-December to mid-January, butanes and natural gasoline in unprocessed natural gas condensed in interstate pipelines and caused operational problems.

The risk of gas price spikes will continue. To keep gas plants operating at minimum recovery levels, processors are considering contract changes that take the form of suspending full keep-whole provisions for percentage-of-proceeds contracts or fee-for-service provisions.

Related Articles

Statoil reduces capital budget by $2 billion following 4Q losses

02/06/2015 Statoil ASA has reduced its organic capital expenditure to $18 billion in 2015 from $20 billion in 2014. The move comes on the heels of a fourth qu...

MARKET WATCH: NYMEX oil price bounces back up somewhat

02/06/2015 Crude oil prices on the New York market bounced up $2/bbl to settle slightly above $50/bbl Feb. 5. The positive momentum continued during early Jan...

Oil-price collapse may aggravate producing nations’ other problems

02/05/2015 The recent global crude-oil price plunge could be aggravating underlying problems in Mexico, Colombia, and other Western Hemisphere producing natio...

MARKET WATCH: NYMEX oil drops, ending 4-day rally

02/05/2015 Crude oil prices dropped on the New York market Feb. 4 to settle below $50/bbl and to end a 4-day rally after a weekly government report showed oil...

Alberta’s premier seeks more North American energy integration

02/05/2015 Better policy integration and cooperation will be needed for Canada, Mexico, and the US to fully realize the North American energy renaissance’s po...

Deloitte studies oil supply growth for 2015-16

02/04/2015 A Deloitte MarketPoint analysis suggested large-field projects, each producing more than 25,000 b/d, could bring on 1.835 million b/d in oil supply...

Oil, gas infrastructure investments essential, House panel told

02/04/2015 Investments in oil and gas transportation and storage should move ahead because they are essential in continuing the US economic recovery and North...

MARKET WATCH: NYMEX crude oil prices reach 2015 high

02/04/2015 Crude oil prices surged more than $3/bbl on the New York market Feb. 3, closing at the highest level so far this year, but some analysts believe th...

BG’s 2015 budget ‘significantly lower than 2014’

02/03/2015 BG Group plans capital expenditures on a cash basis of $6-7 billion in 2015, a range it says is “significantly lower than 2014” due to “a lower oil...
White Papers

Pipeline Integrity: Best Practices to Prevent, Detect, and Mitigate Commodity Releases

Commodity releases can have catastrophic consequences, so ensuring pipeline integrity is crucial for p...
Sponsored by

AVEVA’s Digital Asset Approach - Defining a new era of collaboration in capital projects and asset operations

There is constant, intensive change in the capital projects and asset life cycle management. New chall...
Sponsored by

Transforming the Oil and Gas Industry with EPPM

With budgets in the billions, timelines spanning years, and life cycles extending over decades, oil an...
Sponsored by

Asset Decommissioning in Oil & Gas: Transforming Business

Asset intensive organizations like Oil and Gas have their own industry specific challenges when it com...
Sponsored by

Squeezing the Green: How to Cut Petroleum Downstream Costs and Optimize Processing Efficiencies with Enterprise Project Portfolio Management Solutions

As the downstream petroleum industry grapples with change in every sector and at every level, includin...
Sponsored by

7 Steps to Improve Oil & Gas Asset Decommissioning

Global competition and volatile markets are creating a challenging business climate for project based ...
Sponsored by

The impact of aging infrastructure in process manufacturing industries

Process manufacturing companies in the oil and gas, utilities, chemicals and natural resource industri...
Sponsored by

What is System Level Thermo-Fluid Analysis?

This paper will explain some of the fundamentals of System Level Thermo-Fluid Analysis and demonstrate...
Available Webcasts


Prevention, Detection and Mitigation of pipeline leaks in the modern world

When Thu, Apr 30, 2015

Preventing, detecting and mitigating leaks or commodity releases from pipelines are a top priority for all pipeline companies. This presentation will look at various aspects related to preventing, detecting and mitigating pipeline commodity releases from a generic and conceptual point of view, while at the same time look at the variety of offerings available from Schneider Electric to meet some of the requirements associated with pipeline integrity management. 

register:WEBCAST



On Demand

Global LNG: Adjusting to New Realities

Fri, Mar 20, 2015

Oil & Gas Journal’s March 20, 2015, webcast will look at how global LNG trade will be affected over the next 12-24 months by falling crude oil prices and changing patterns and pressures of demand. Will US LNG production play a role in balancing markets? Or will it add to a growing global oversupply of LNG for markets remote from easier natural gas supply? Will new buyers with marginal credit, smaller requirements, or great need for flexibility begin to look attractive to suppliers? How will high-cost, mega-projects in Australia respond to new construction cost trends?

register:WEBCAST


US Midstream at a Crossroads

Fri, Mar 6, 2015

Oil & Gas Journal’s Mar. 6, 2015, webcast will focus on US midstream companies at an inflection point in their development in response to more than 6 years shale oil and gas production growth. Major infrastructure—gas plants, gathering systems, and takeaway pipelines—have been built. Major fractionation hubs have expanded. Given the radically changed pricing environment since mid-2014, where do processors go from here? What is the fate of large projects caught in mid-development? How to producers and processors cooperate to ensure a sustainable and profitable future? This event will serve to set the discussion table for the annual GPA Convention in San Antonio, Apr. 13-16, 2015.

This event is sponsored by Leidos Engineering.

register:WEBCAST


The Future of US Refining

Fri, Feb 6, 2015

Oil & Gas Journal’s Feb. 6, 2015, webcast will focus on the future of US refining as various forces this year conspire to pull the industry in different directions. Lower oil prices generally reduce feedstock costs, but they have also lowered refiners’ returns, as 2015 begins with refined products priced at lows not seen in years. If lower per-barrel crude prices dampen production of lighter crudes among shale plays, what will happen to refiners’ plans to export more barrels of lighter crudes? And as always, refiners will be affected by government regulations, particularly those that suppress demand, increase costs, or limit access to markets or supply.

register:WEBCAST


Emerson Micro Motion Videos

Careers at TOTAL

Careers at TOTAL - Videos

More than 600 job openings are now online, watch videos and learn more!

 

Click Here to Watch

Other Oil & Gas Industry Jobs

Search More Job Listings >>
Stay Connected