Mark F. Sutton Ron E. Cannon
Gas Processors Association
Tulsa
The U.S. gas-processing industry is nearing production, total supply, and demand records.
These trends make gas processing one of the few bright spots in the petroleum industry and are especially welcome after the severe conditions of 1986-89.
Barring unforeseen industry upheavals, the current year promises a continuation of moderate production increases, stable demand in most major markets, and reasonable product values. A review of current trends, both inside and outside the industry, and an attempt to assess the immediate future, may help prevent the current sense of stability from becoming complacency.
PRODUCTION, DEMAND TRENDS
Figs. 1 and 2 summarize total gas-liquids supply, by product and by source, for 1984-1991. Gas-plant production topped 600 million bbl during 1991-the highest since 1974. Although not broken out in the graphs, other significant milestones in 1991 include the following:
- Gas-plant ethane production totalled 193 million bbl, the highest in history. This total represents an increase of 33% since 1981 and makes ethane the principal gas-plant product today.
- Gas-plant propane production totalled 177 million bbl. Supplemented by 153 million bbl of refinery production and 31 million bbl of imports, both domestic production and total supply of propane in 1991 were the second highest in history.
- Including refinery production, total domestic gas-liquids production in 1991 was 785 million bbl, an all-time high.
Clearly, the gas-processing industry is vital, growing, and increasingly an important segment of the petroleum industry. As a point of reference, domestic gas-liquids' production equates to about 2.15 million b/d, compared to 7.37 million b/d of crude-oil production.
NGLS, therefore, now account for 23% of U.S. petroleum liquids production. Including the 19 tcf/Year of natural gas processed through U.S. gas plants, the gaseous fuels today account for about 57% of total domestic petroleum production (Fig. 3).
Major demand segments for gas liquids (Fig. 4) are chemical feedstocks, gasoline feed and blend stocks, and the retail market, which includes fuel for residential, commercial, engine, and farm uses. These three markets combined account for about 90% of total gas-liquids demand, with remaining consumption mostly in industrial and utility fuels and in exports.
FEEDSTOCKS
Chemical feedstock demand is clearly the dominant and growing market for gas liquids, comprising about 45% of total demand.
Ethane and propane are the major feedstocks (Fig. 5). Sales data for 1991 are not yet available, but the 362 million bbl of chemical feedstock demand in 1990--roughly a million b/d--is a 20% increase over 1984 sales.
Given a growing ethylene capacity, together with a reasonable economic recovery, this growth trend will almost certainly continue into 1992 and the immediate future.
Refinery demand for gasoline blend stocks and feedstocks has always been the major--and sometimes only--market for butanes and natural gasoline.
Total U.S. consumption of petroleum products is about 16.7 million b/d. The transportation fuels--gasoline, diesel, and jet fuels--account for two thirds of total product consumption. About 25% of total marketed gas liquids, plus a large volume of refinery butanes, is consumed in this very important market.
Historically, gas-plant butanes and natural gasoline have been premium blend stocks for motor gasoline volatility and octane based on the equivalency of 1 bbl of the light hydrocarbons to about 2 bbl of crude oil in the manufacture of gasoline.
Until recent years, NGLs provided 8-10% of total motor-gasoline volume. During the 1980s, however, demand for these feedstocks slipped to about 6% of motor gasoline, due in part to growing refinery production of these fractions.
In the mid-1980s, the EPA mandated the phased elimination of lead additives in gasoline. The phase-out is now complete and natural gasoline--once a valuable blending stock for leaded motor gasoline--is now just another raw feedstock that must be processed into desirable gasoline components. Natural gasoline product values since 1985 have reflected this change.
Removal of lead from gasoline briefly boosted butanes. Partially to compensate for the loss of gasoline octane, the refining industry increased its use of butanes; one result of which was a significant increase in gasoline volatility.
A further result was the discovery that the higher gasoline vapor pressures increased hydrocarbon emissions and created hazardous levels of atmospheric ozone, particularly in the summer.
The reaction to this problem was additional regulation, beginning in 1990, which drastically reduced gasoline vapor pressure and the use of butane blend stocks, particularly in the summer. Gasoline vapor pressures will be further reduced during the summer of 1992.
As in the case of natural gasoline, butanes slipped from the status of a premium blend stock to that of just another process feedstock. Not surprisingly, the lower product value is reflected in significantly lower prices and a sizable shift of normal butane into petrochemical feedstocks since 1985.
Fig. 6 shows these trends since 1984.
The most obvious change has been a steady decline in gas-liquids demand for gasoline feedstocks, amounting to about 8% during this time period.
In volumes, the decline has been about 50,000 b/d of normal butane and about 40,000 b/d of natural gasoline, partially offset by an increase of about 45,000 b/d of isobutane. The net loss to date, though serious, does not approach some of the industry's own dire predictions of the mid-to-late 1980s.
It is apparent that the light hydrocarbons continue in healthy, if not spectacular, demand as feedstocks for isomers, alkylates, reformate, and other components of a changing motor gasoline menu.
But more changes are in store.
DEMAND OUTLOOK
The Clean Air Amendments of 1990 may bring the most sweeping changes in the history of the petroleum industry. The legislation and implementing regulations will have profound effects on every aspect of the industry, including natural gas, gas liquids, and all refined products. Although a full summary of probable effects is beyond the scope of this analysis, two major impacts are obvious:
- Completely reformulated motor gasolines.
- Utilization of several alternative fuels for motor vehicles.
MOTOR GASOLINE
The reformulated motor gasoline of the future, the composition of which is still uncertain, will almost certainly reflect the following:
- Further reductions in volatility
- Reduction of benzenes and other aromatics
- Reduced toxics emissions
- Reduced sulfur emissions
- Oxygen additives for reduction of CO emissions.
Just one of these, gasoline oxygenates, will affect both natural gas and gas processing.
It appears that the refining industry is focusing on methyl tertiary butyl ether (MTBE) as the oxygenate of choice. Table 1 summarizes MTBE plants now operating, under construction, or under study.
Many of the smaller plants are pegged to a specific refinery's needs and availability of captive feedstock, notably isobutylene. Other plants, in the 10,000-30,000 b/d class, will function as merchant producers.
If demand estimates of 500,000 b/d of MTBE in the near future are even close, the U.S. will not have sufficient butane, isobutane, or isobutylene feedstocks to meet projected needs.
In addition to the demand for MTBE feedstocks, there is a strong likelihood that the motor gasolines of the immediate future may increase alkylate needs by as much as 300,000 to 400,000 b/d.
These trends counter the oversupply of butane that was predicted only a few years ago.
The other feedstock for MTBE is methanol, most of which is manufactured from natural gas. Based on published information, projected MTBE requirements say that roughly 675-920 MMcfd of natural gas will be going into the manufacture of methanol.
ALTERNATIVE FUELS
The alternative fuels requirement of the air-quality regulations is perhaps the best opportunity in history to advance the use of LPG motor fuels.
Propane is the most widely used alternative motor fuel in the world today, having been successfully fueling vehicles for more than 60 years. Approximately 500,000 propane-powered vehicles are in use in the U.S. today, mostly in commercial fleets of light and medium duty trucks, buses, taxis, police cars, and carrier services.
These fleets consumed about 13 million bbl of propane in 1990--about 4% of total propane consumption.
Worldwide, there are about 3.5 million LPG-fueled vehicles, principally in the U.S., Canada, Italy, The Netherlands, and Japan. Total LPG motor-fuel consumption is estimated at about 85 million bbl/year.
There is some concern--unjustified--that an expanded propane motor-fuel demand will constrain supplies for traditional fuel and feedstock consumers.
Of the roughly 12 million fleet vehicles in the U.S., only about 4 million will be covered by the clean-air provisions. The gas-processing industry will take all of the new uses it can get, but a realistic ambition would be 25% of the covered fleet, or about 1 million new vehicles.
A conservative calculation says that 1 million fleet vehicles would consume approximately 24 million bbl/year of propane--a significant demand but hardly a major strain on the total U.S. supply of nearly 400 million bbl/year.
CRUDE-OIL LINKAGE
The bottom line for gas processing in 1991 is shown in Fig. 7. Unfortunately, much of the improvement results from the lowest natural gas prices since 1980.
However, the gas-processing margin is also a function of product values, which has always been and always will be dominated by the price of crude oil. Fig. 8 graphically indicates this fact of life in the gas-processing industry.
Gas processors must also realize that the bottom line will be affected by a continuing morass of environmental and safety-related legislation and regulations.
The 1990 Clean Air Amendments not only will have a pronounced effect on alternative fuels, but they will significantly affect daily gas-processing operations.
Most significant of these are recent chemical process safety management regulations of the Occupational Safety & Health Administration (OSHA). These regulations are directed at plant personnel, and the compliance burden will fall on an already slender industry work force that continues to shrink in size.
The Clean Air Act also mandates that the Environmental Protection Agency (EPA) develop a list of at least 100 hazardous substances and requires plant owners to complete an engineering analysis of every facility to identify public health hazards, followed by implementation of risk-management plans to prevent accidents.
This effort resembles that of OSHA but will focus on accidental chemical release protection of the public rather than the individual plant worker. Gas processors must be aware of both issues.
Although the bottom line for gas processing is improving and the industry is enjoying a return to solvency, many issues require continuing adaptation by the industry if it is to maintain its current profitability.
Copyright 1992 Oil & Gas Journal. All Rights Reserved.
