More gas processing plants are temporarily shutting their doorsthis month, a fallout from higher natural gas prices. The usuallymore expensive gas liquids now cost less than the raw natural gas,and buyers looking for propane, butane, isobutane and chemicalfeedstocks may have to look a little longer and spend a little morethan they did a month ago.

According to the Lakewood, NJ-based OPIS Energy Group, tightsupplies are expected along the Gulf Coast and the Northwest,especially in Louisiana and nearby markets where gas processingplants have been shut down recently. “The usually more expensiveliquids can be sold for much more if they remain in the natural gasthat is then sold downstream,” said OPIS.

Mitchell Energy & Development Corp., which processes some ofits natural gas at Exxon’s Katy plant near Houston, said last weekit would not process gas there this month to “take advantage ofcurrent high natural gas prices.” The decision is strictly bottomline. The company will make more money from raw natural gas inDecember than its natural gas liquids (NGL) production, which willbe reduced by nearly 14,000 bbl/d.

“We process gas at Katy under a ‘keep whole’ contract,” saidAllen J. Tarbutton, president of Mitchell’s gas services division.”Although NGL prices are at historically high levels, it will bemore profitable to sell the NGLs as part of the even more valuablenatural gas stream since Katy is an older plant that is not asefficient as Mitchell-owned plants. Because we produce and sellabout three times as much natural gas as we buy for fuel andshrinkage in our processing business, overall we are seeingsignificant gains in earnings and cash flows due to the relativelyhigh natural gas prices.”

Last week, Houston-based Dynegy Inc. said it had cut itsproduction of NGL by either shutting plants down or cuttingoperating rates because of high feedstock natural gas prices.

“A lot of the straddle plants – which straddle the main gas lineand extract the liquids – are shut down,” said Vincent McConnell,senior vice president of liquids for Dynegy’s market and tradegroup. The number of plants closed was not disclosed, but Dynegyowns 25 plants along the Gulf Coast that process up to 580,000bbl/d.

A survey by OPIS found that almost 50% of all gas plants in theLouisiana region could be completely shut down this month, with theremainder 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 islittle “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,” saidOPIS. “The surge in prices has in turn led chemical plants thatmake ethylene to consider partial cutbacks since they can’t affordthe additional cost of feedstock in a market that has amplesupplies of ethylene.”

OPIS said that monthly contract negotiations between gas liquidssuppliers and petrochemical customers are under way for Decembervolumes. “Early deals for ethane, a key feedstock, have been donearound $.51 a gallon, a 25% rise from five weeks ago. There arepredictions that ethane prices could rocket as high as $.60 agallon before the negotiations are completed.”

While the Gulf Coast appears to have taken the initial hit inhigher NGL prices, OPIS said the Pacific Northwest refiners are”actively burning gas liquids, particularly propane, as refineryfuel.” OPIS’s survey found that spot prices and wholesale pricesfor propane in California are “running at about $.91-.95 a gallon,which is as much as $.50 cents a gallon under its value torefineries as a boiler fuel these days.”

As some companies pull back from processing gas short term,others are increasing their capacity through acquisitions orexpansions of their own plants. Last week, Conoco Inc. announced itwould buy LG&E Energy Corp.’s natural gas gathering andprocessing business assets in the Southwest to increase its gasprocessing capacity.

Though Mitchell won’t be processing its gas at the Exxonfacility, it said last week it would expand its own gas processingfacility in North Texas for $64 million. The Woodlands, TX-basedcompany announced plans for a second add-on to its Bridgeportnatural gas processing plant, expected to be completed by July2001.

The initial plant expansion by Mitchell begins this month,increasing processing capacity by 100 MMcf/d to 310 MMcf/d. Maximumproduction of natural gas liquids at Bridgeport will increase by8,000 bbl/d to 27,000 barrels. The second expansion will bringcapacity to 430 MMcf/d and 37,000 bbl/d.

Calgary’s Laniuk Industries Inc.’s subsidiary RJV Gas FieldServices also is betting that gas processing shutdowns are shortterm. Last week the company said it would acquire more productionfacilities to expand its manufacturing capacity and “satisfy theincreasing demand” for its natural gas processing equipment. Italso will add 105 employees to keep up with demand.

Carolyn Davis, Houston

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