Allen J. Tarbutton Jr.
Mitchell Energy Corp.
The Woodlands, Tex.
In the last half of the 1980s, the U.S. petroleum industry entered the "Age of Gaseous Energy." Early indications for the 1990s are promising for both natural gas and natural-gas liquids.
PRODUCTION TRENDS
Since the peak year of 1985, U.S. crude oil production has declined about 19%-from 8.971 to 7.301 million b/d in 1990. During this same period, U.S. marketed production of natural gas has increased about 7%-from 17.2 to 18.5 tcf/year.
Fig. 1 shows these trends.
Production and demand for gas-plant liquids, although somewhat erratic and price sensitive, continue to average about 1.5-1.6 million b/d. Current strong demand and preliminary production data suggest that gas-plant production in 1991 may total 600 million bbl of NGL in 1991 the highest total production since 1974.
At current production levels, gas-plant production accounts for about 18% of total U.S. liquid petroleum production. Including refinery production of 500,000 b/d, natural-gas liquids provide some 22% of total domestic supplies of petroleum liquids.
At the beginning of 1990, proved reserves of the gaseous fuels-natural gas and natural-gas liquids-comprised about 55% of total U.S. petroleum energy reserves (Fig. 2).
Another little known statistic is that during 1989, for the first time in the history of the U.S. industry, more U.S. new field and exploratory gas wells were drilled than oil wells. Whether this trend has continued during 1990 and 1991 in the face of depressed gas prices remains to be seen.
These and other data confirm that the U.S. petroleum industry has indeed entered the "Age of Gaseous Energy- 11
There is every reason to believe that the recently enacted Clean Air Act (CAA) will accelerate the industry's reliance on, and development of, the gaseous fuels, for the simple reason that these are the cleanest burning fossil fuels for power generation, industrial fuels, and a wide variety of other uses.
(Editor's note: For a discussion of the effect of the CAA amendments on the natural-gas processing industry, see the article by Haun, et al, p. 46.)
In addition, as Fig. 2 reveals, the gaseous fuels comprise the bulk of U.S. petroleum left to produce.
Since 1980, the consumption of residual fuel oil, a major source of industrial fuel, has declined by half, replaced in part by natural gas. Coal, while still a major and growing power-generation fuel, faces a problematic future in complying with pending clean-air regulations.
These trends provide growing opportunities for natural gas.
Assuming a modest growth rate of, for example, 2-3%/year, U.S. natural gas marketed production can be projected to 22-24 tcf/year by the end of this decade. All of this gas must be gathered, treated, compressed, and processed through the gas-processing industry's extensive facilities.
At traditional liquid recovery rates of 30-33 bbl of NGL/1 MMcf of marketed natural gas, the arithmetic works out to some 650-800 million bbl/year of gas-plant production by 1999, or about 1.8-2.2 million b/d.
If these numbers are realized and if current crude-oil production trends continue, gas-plant production of NGLs will, at that time, account for 25-30% of total U.S. liquid-petroleum production, an increase from the current 18%. Including refinery production, NGLs could easily comprise 30-35% of total U.S. production of liquid petroleum.
All of this suggests that gas processing and NGLs will become increasingly important sources of feedstocks for petrochemical derivatives, and as motor-fuel components, via alkylates, isomers, and oxygenates for the reformulated motor gasolines of the future. Both natural gas and gas liquids, principally propane, will also play important roles as clean-burning alternative automotive fuels in addition to their traditional uses as sources of clean-burning industrial and space-heating fuels.
1990-91 GAS PROCESSING
Meanwhile, the gas-processing industry is hoping that the dramatic turnaround of 1990 (Fig. 3) is the precursor of a new era of prosperity.
Following 4 years of breakeven operations during 1986-1989, a 40% increase in NGL product values, mostly in the last half of 1990, resulted in a 95% increase in gross gas-plant margins for the year. Early 1991 data have suggested a similar fiscal performance for 1991 and the highest NGL production in a decade.
Ethane demand, in particular, is very strong as the preferred ethylene feedstock, and gas processors are maximizing its recovery after a year or more of ethane rejection.
In addition, restarts and relocations of formerly idle plants are being pressed into the production derby that will, in all likelihood, result in all-time record levels of ethane production.
Gas liquids are the source of about 70% of ethylene feedstocks, and at least three major new ethylene crackers to come on-stream in 1991 are designed for ethane, propane, or butane feedstock.
Total NGL demand, however, declined significantly in 1990. Ethane was up about 34,000 b/d, almost entirely for ethylene feedstock, but propane demand fell by about 74,000 b/d. The propane decline was about evenly split between residential heating fuel demand, which experienced a warm heating season, and petrochemical feedstock demand, which faded in the last half of the year in response to noncompetitive propane prices.
Butane data for 1990 are more than a little confusing. The raw data indicate a decline in refinery marketed production of about 60,000 b/d. It is believed, however, that the significant increases in 1988-1989 refinery production may have been the result of misreporting and an overstatement of normal butanes from refineries.
The inordinate increases in 1988-1989 refinery butanes were thought to be the anticipated rejection of butanes in response to summertime reductions in motor gasoline volatility. The probability of anomalies in the data, however, cast considerable doubt on the conventional projection of a flood of summertime butanes.
These doubts lead to the question of where all the supposedly surplus butane is going. The answer may lie in its use in alkylate production or as the ethylene feedstock of choice during the summer.
Whatever the reasons, it appears that the expected glut of butanes may never have occurred. On the contrary, most projections anticipate extremely tight butane supplies for MTBE and other gasoline feedstock needs of the very near future.
GAS PROCESSING OUTLOOK
Both the business and the products of gas processing are extremely volatile elements, but processors have learned to live with wide and sudden shifts in market demands, gas prices, and product values.
With a given gas volume and composition, a plant's gross margin is a function of gas price and product market values. The industry's average gross margin has fluctuated between $13.56/bbl in 198 1 to $3.53 in 1986. Current gross margins are about $10/bbl.
As noted earlier, 1991 appears to offer every promise of extending the current period of relative prosperity. But gas processors have also learned that the business is very cyclical and that longer-range projections can be very hazardous undertakings, simply because nearly every element of the margin equation is under the control of other entities or other segments of the petroleum industry.
For one thing, the major cost of gas processing is the cost of gas, which is inexplicably stuck at the lowest levels in 6 years.
Secondly, gas liquids are commodity products whose values are subject to innumerable factors, events, competitive feedstocks, and the needs of other segments of the industry.
Conventional wisdom has always held that there is a definite, if loose, linkage between the values of gas liquids and crude oil. Fig. 4 is a 10-year summary that confirms the linkage (with NGLs of lower value) over a long period of time.
The linkage is not too reliable on a month-to-month basis, however, or during periods of rapid movements in crude-oil costs, as shown in the monthly summary of Fig. 5.
Fully 65% of total gas-liquids demand is as a commodity feedstock for petrochemicals and motor gasoline. Both uses are expected to increase significantly in the coming year and into the foreseeable future.
Copyright 1991 Oil & Gas Journal. All Rights Reserved.
