Shutdowns Keep Gas Liquids in Short Supply
More gas processing plants are temporarily shutting their doors
this month, a fallout from higher natural gas prices. The usually
more expensive gas liquids now cost less than the raw natural gas,
and buyers looking for propane, butane, isobutane and chemical
feedstocks may have to look a little longer and spend a little more
than they did a month ago.
According to the Lakewood, NJ-based OPIS Energy Group, tight
supplies are expected along the Gulf Coast and the Northwest,
especially in Louisiana and nearby markets where gas processing
plants have been shut down recently. "The usually more expensive
liquids can be sold for much more if they remain in the natural gas
that is then sold downstream," said OPIS.
Mitchell Energy & Development Corp., which processes some of
its natural gas at Exxon's Katy plant near Houston, said last week
it would not process gas there this month to "take advantage of
current high natural gas prices." The decision is strictly bottom
line. The company will make more money from raw natural gas in
December than its natural gas liquids (NGL) production, which will
be reduced by nearly 14,000 bbl/d.
"We process gas at Katy under a 'keep whole' contract," said
Allen J. Tarbutton, president of Mitchell's gas services division.
"Although NGL prices are at historically high levels, it will be
more profitable to sell the NGLs as part of the even more valuable
natural gas stream since Katy is an older plant that is not as
efficient as Mitchell-owned plants. Because we produce and sell
about three times as much natural gas as we buy for fuel and
shrinkage in our processing business, overall we are seeing
significant gains in earnings and cash flows due to the relatively
high natural gas prices."
Last week, Houston-based Dynegy Inc. said it had cut its
production of NGL by either shutting plants down or cutting
operating rates because of high feedstock natural gas prices.
"A lot of the straddle plants - which straddle the main gas line
and extract the liquids - are shut down," said Vincent McConnell,
senior vice president of liquids for Dynegy's market and trade
group. The number of plants closed was not disclosed, but Dynegy
owns 25 plants along the Gulf Coast that process up to 580,000
A survey by OPIS found that almost 50% of all gas plants in the
Louisiana region could be completely shut down this month, with the
remainder of facilities operating at a reduced level.
Fractionators, which turn the raw gas liquids feed into propane,
butane and other products, will be shut down because there is
little "raw feed" to process into these gas liquids.
"Because of the tight supply, prices have soared as much as 20%
for propane and other feedstocks produced by the gas plants," said
OPIS. "The surge in prices has in turn led chemical plants that
make ethylene to consider partial cutbacks since they can't afford
the additional cost of feedstock in a market that has ample
supplies of ethylene."
OPIS said that monthly contract negotiations between gas liquids
suppliers and petrochemical customers are under way for December
volumes. "Early deals for ethane, a key feedstock, have been done
around $.51 a gallon, a 25% rise from five weeks ago. There are
predictions that ethane prices could rocket as high as $.60 a
gallon before the negotiations are completed."
While the Gulf Coast appears to have taken the initial hit in
higher NGL prices, OPIS said the Pacific Northwest refiners are
"actively burning gas liquids, particularly propane, as refinery
fuel." OPIS's survey found that spot prices and wholesale prices
for propane in California are "running at about $.91-.95 a gallon,
which is as much as $.50 cents a gallon under its value to
refineries as a boiler fuel these days."
As some companies pull back from processing gas short term,
others are increasing their capacity through acquisitions or
expansions of their own plants. Last week, Conoco Inc. announced it
would buy LG&E Energy Corp.'s natural gas gathering and
processing business assets in the Southwest to increase its gas
Though Mitchell won't be processing its gas at the Exxon
facility, it said last week it would expand its own gas processing
facility in North Texas for $64 million. The Woodlands, TX-based
company announced plans for a second add-on to its Bridgeport
natural gas processing plant, expected to be completed by July
The initial plant expansion by Mitchell begins this month,
increasing processing capacity by 100 MMcf/d to 310 MMcf/d. Maximum
production of natural gas liquids at Bridgeport will increase by
8,000 bbl/d to 27,000 barrels. The second expansion will bring
capacity to 430 MMcf/d and 37,000 bbl/d.
Calgary's Laniuk Industries Inc.'s subsidiary RJV Gas Field
Services also is betting that gas processing shutdowns are short
term. Last week the company said it would acquire more production
facilities to expand its manufacturing capacity and "satisfy the
increasing demand" for its natural gas processing equipment. It
also will add 105 employees to keep up with demand.
Carolyn Davis, Houston