2.6

NATURAL GAS LIQUIDS

NGLs are combustible gases heavier than methane (natural gas) but still light enough to exist in a gaseous state at standard temperature and pressure. There are five natural gas liquids—ethane, propane, butane, iso-butane, and pentane. Pentanes are often found mixed with slightly heavier hydrocarbons and referred to by the names pentanes plus or natural gasoline (Figure 2.6.1).

Figure 2.6.1 Natural gas liquids

Compared to natural gas, the heavier NGLs, like propane and butane, are much more easily liquefied by compression. Converted to a liquid, NGLs are approximately 270 times more compact than they exist as a gas. Since this compression for these gases can be done under only moderate pressure, this allows these gases to be transported and stored in a liquid state. A typical use for these products is as a fuel for cooking (like a backyard grill). For this use, propane might be stored in a pressurized container that will start to evaporate (converts to a gas) when a valve is opened to release it.

NGLs are commonly found dissolved within crude oil or natural gas. They are abundantly found in shale deposits that can be developed through the use of natural gas fracking. They are separated from natural gas at natural-gas-processing plants or from crude oil at refineries. A related term, liquefied petroleum gas (LPG), refers to a mixture of two of the heavier NGLs (propane and butane).

Hydrocarbon Gas Liquids

NGLs fall into the broader category of hydrocarbon gas liquids (HGLs). There are two main types of HGLs—NGLs that are more properly called alkanes (or paraffins) and a second set of products called alkenes (or olefins). Alkenes/olefins are commonly used as a feedstock in the petrochemical industry to make products like plastics, artificial rubber, paints, and solvents.

Chemically, alkanes and alkenes differ slightly. Alkanes have single covalent bonds joining the carbon atoms. Alkenes have one or more double bonds between carbon atoms. As a result, for the same number of carbon atoms alkenes will have fewer hydrogen atoms (Figure 2.6.2). From a trading perspective, there isn’t a lot to know about refinery feedstock except to know that they exist. There isn’t a major trading market for refinery feedstocks for alkenes.

Figure 2.6.2 Alkanes and alkenes

Propane

Propane is primarily used as a heating and vehicular fuel. In a residential setting, propane is often used for heating and cooking where natural gas isn’t available. For example, it is commonly used for drying clothes, fueling barbecue grills, and powering backup electrical generators. Propane is also often used to power farm and industrial equipment like power forklifts, electric welders, and tractors. A secondary use for propane is as a feedstock for the petrochemical industry. It is used, along with ethane and naphtha, in petrochemical crackers to produce ethylene, propylene, and other olefins.

Ethane

Ethane is mainly used to produce ethylene, a feedstock to make plastics. Because demand for ethane is almost entirely in the petrochemical sector, and because this product is difficult to transport by any mode other than in dedicated pipelines, there is a very limited trading market for ethane.

Because the market for ethane is so limited, many NGL processors choose not to separate it out from methane. As a result, ethane is often left in the natural gas that enters the interstate natural gas pipeline system.

Butanes

Most butane is actually blended with either propane or gasoline. When mixed with propane, it is often called liquid petroleum gas (see Figure 2.6.3). Isobutane is primarily used to increase the octane of gasoline. It is less common than normal butane. As a result, it is slightly more valuable and normal butane is often converted into isobutane.

Figure 2.6.3 Liquid petroleum gas

Natural Gasoline (Pentanes+)

Natural gasoline is similar to a low octane gasoline called naphtha. It is commonly blended into gasoline. In the United States, natural gasoline is also commonly added to fuel ethanol to make the ethanol undrinkable. About half of U.S. natural gasoline production is exported to Canada where it is used as reduce the viscosity of heavy crude oil. Mixed with heavy crude, it is called diluted bitumen or dilbit. This allows heavy crude oil to be more easily transported in pipelines and rail cars.

NGL Trading

The majority of NGL trades occur at market hubs connected to a critical mass of pipelines and refiners. The two largest hubs for NGL trading are Mont Belvieu, Texas, and Conway, Kansas. Mont Belvieu is a suburb of Houston, Texas, while Conway is located in central Kansas (Figure 2.6.4). NGLs are traded both physically (transferred from seller to buyer) and financially (via derivative transactions where the parties settle up in cash against an index price).

Figure 2.6.4 NGL trading hubs

When traded, NGLs can be transacted at a variety of different purities. The two main grades of purities are pipeline grade and fractionation grade. Generally, fractionation grade NGLs are slightly more expensive than the more purified products. That is because the less-purified products generally contain more heavy hydrocarbons. The market for these products is concentrated around the U.S. Gulf Coast where pipelines connect many refineries.

Pipeline grade has to conform to the quality standards specified by pipeline companies in the “General Terms and Conditions (GTC)” section of their tariffs. These quality standards vary from pipeline to pipeline and depend on the design of the pipeline, interconnecting pipelines, and intended consumer of the product. Some common clauses include:

•   Btu content.

•   A minimum dew point temperature level below which any vaporized gas liquid in the mix will tend to condense at pipeline pressure.

•   Limits on pollutants and nonfuel gas.

•   Limits on particulate solids and liquids that could be detrimental to the pipeline or its ancillary operating equipment.

These standards are necessary to prevent damage to a pipeline. Heavier hydrocarbons are more likely to condense into liquids. Once that happens, NGLs can be difficult to remove from a pipeline. Since pipelines are airtight, liquids will not evaporate once trapped. Also, since the NGLs are often solvents, they are corrosive. As a result, condensed NGLs in a pipeline can easily cause damage.