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Shutdowns Keep Gas Liquids in Short Supply

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 bbl/d.

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 processing capacity.

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 2001.

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

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