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Analyzing Cash Flows of Master Limited Partnerships

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2014-11-26 16:00

Glossary of MLP Operational Terms

   
Amine treating plantsGas at the wellhead, unless it is coalbed methane, normally contains NGLs, CO2, hydrogen sulphide (H2S2) and water that can corrode pipelines and waste valuable pipeline capacity. Operators use various types of equipment to remove water and contaminants. The gas is sent to an amine treater to remove CO2 and H2S2. As gas flows upward into the treater it becomes as “sweetened” gas stream and a “rich” amine stream which is then routed to a regenerator so that the amine can be reused in the absorber.
Associated gasAssociated or casinghead gas is raw natural gas that has become dissolved in oil accumulations and is produced as a by-product along with crude oil. If the gas is in contact, but not in solution with crude oil, it called associated free gas. Associated gas is typically rich with heavier NGLs.
Backwardated and contango marketsStorage terminals are affected by backwardated and contango markets. In a backwardated market, the future delivery price of the commodity (i.e., natural gas or crude oil) is below the current spot price, resulting in less incentive to store the commodity. In a contango market, the future delivery price of the commodity is above the current spot price, giving producers and marketers incentive to store the commodity.
Base gasThe amount of gas needed in a storage asset to provide the pressure to turn over the normal storage volume.
Base load gasThe minimum amount of gas consumed at a steady rate; the normal level of gas demand.
Benzene (C6H6)Benzene is an intermediary product used in the synthesis of styrene/polystyrene. Polystyrene has many uses including disposable cutlery, CD and DVD cases, and Styrofoam (a trademark of Dow Chemical), which is used to create disposable cups, plates, packaging, etc. To note, benzene is a natural constituent of crude oil, and hence natural gas-based steam cracker feeds such as ethane and propane do not produce benzene as a byproduct.
BOEBarrel of oil equivalent. The factor used to convert gas to oil equivalent is based upon an approximate energy value of 5,800 cubic feet per barrel. See also Calorific value.
BTUBritish thermal unit; a unit of measurement for energy representing the amount of heat necessary to raise the temperature of one pound of water by one degree Fahrenheit.
Butadiene (C4H6)Butadiene is an important building block of synthetic rubber. Butadiene is produced primarily as a byproduct of stream cracking.
ButaneOne of six marketable products (excluding condensate and sulfur) produced from the NGL stream (see NGL). Butane is sold ass bottled fuel for cooking, camping and cigarette lighters; it is also used as a petrol component, as a feedstock for petrochemicals and as a propellant in aerosol sprays.
Calorific value (of crude and natural gas)It is often necessary and useful to convert gas volume into energy equivalent barrels of oil using barrel of oil equivalent (boe) units. This is commonly done when both oil and gas are found and produced in the same reservoir, making it easier to estimate the total reserves or production volumes. Crude oil has a calorific value of 5.4 to 5.8 million BTU per barrel (bbl) of oil, depending on the composition of the oil. Natural gas has an energy density ranging between 800 and 1200 BTU per cubic feet (average= 1,000). So 1 Mcf (= 1,000 cubic feet of gas) = 1.0 million BTU (MMBTU) +/- 20% depending on the quality of the gas. Barrel of oil equivalent. The factor used to convert gas to oil equivalent is based upon an approximate energy value of 5,800 cubic feet per barrel.
CasingheadA wellhead is comprised of a casinghead, tubing head and a Christmas tree. The casinghead supports the casing string, seals the well and prevents fluids from moving within the wellhead and escaping into the air.
Casinghead gasSee definition for associated gas
CO2 pipelinesCarbon dioxide pipelines have been in use for many years and in many industries CO2 is a valuable feedstock. In recent years CO2 has been used on a larger scale for enhanced oil recovery/production applications. Mature oil fields and reservoirs need injections of steam or carbon dioxide to coax more crude out of the ground.
CO2 acts as a pressurizing agent and reduces the viscosity of oil.
Coalbed methaneMethane found in coal seams.
CondensateCondensate or “lease condensate” refers to a specific portion of the NGL stream. Some of the heavier NGL components (i.e., isobutane and natural gasoline) exist as a gaseous state only at underground pressures. These molecules will immediately “condense” to a liquid state when brought to atmospheric conditions, hence the name condensate.
Conventional natural gas productionConventional production typically relates to natural gas that is produced from underground formations composed of sandstone or carbonate rock. Conventional deposits are easier to produce from relative to unconventional deposits.
Unconventional natural gas productionUnconventional production relates primarily to natural gas that is produced from tight formations (i.e., low porosity and permeability), gas shales, and coal bed methane. Natural gas produced from unconventional sources is typically more difficult to extract and thus, is more expensive than conventional production.
Christmas treeA wellhead is comprised of a casinghead, tubing head and a Christmas tree, which is a tree0like device of gauges and valves to regulate, measure and direct the flow of gas and fluids exiting the well. The tree also has a choke to change the well’s production rate.
CompressionCompressor stations are usually placed at 40-100 mile intervals along the pipeline. They compress the gas o 100x the normal atmospheric pressure, or more, using reciprocating compressors driven by gas engines or centrifugal units driven by gas turbines or electric motors. Critical conditions (e.g., temperature, pressure, power) are monitored by the stations in real time.
CondensateCondensate or “lease condensate” refers to a specific portion of the NGL stream. Some of the heavier NGL components (i.e., iso-butane and natural gasoline) exist as a gaseous state only at underground pressures. These molecules will immediately “condense” to a liquid state when brought to atmospheric conditions, hence the name condensate.
CrackingThe process whereby complex organic molecules such as kerogens or heavy hydrocarbons are broken down into simpler molecules (e.g. light hydrocarbons) by the breaking of carbon-carbon bonds in the precursors. The rate of cracking and the end products are strongly dependent on the temperature and presence of any catalysts. Cracking, also referred to as pyrolysis, is the breakdown of a large alkane into smaller, more useful alkanes and an alkene. Simply put, hydrocarbon cracking is the process of breaking long chain hydrocarbons into short ones. Oil refinery cracking processes allow the production of "light" products such as LPG and gasoline from heavier crude oil distillation fractions such as gas oils and residues. Fluid catalytic cracking produces a high yield of gasoline and LPG, while hydrocracking is a major source of jet fuel, diesel, naphtha and LPG. Thermal cracking is currently used to "upgrade" very heavy fractions ("upgrading", "visbreaking"), or to produce light fractions or distillates, burner fuel and/or petroleum coke. Two extremes of the thermal cracking in terms of product range are represented by the high-temperature process called "steam cracking" or pyrolysis (ca. 750 to 900 °C or more) which produces valuable ethylene and other feedstocks for the petrochemical industry, and the milder-temperature delayed coking (ca. 500 °C) which can produce, under the right conditions, valuable needle coke, a highly crystalline petroleum coke used in the production of electrodes for the steel and aluminum industries. See Steam cracking.
Crude oil gradesThe crude slate available to U.S. and world-wide refineries consists of a substantial number of different grades and varieties of crude oil. Each crude grade has distinguishing physical properties. For example, specific gravity (light = higher gravity, heavy = lower gravity), sulfur content (sweeter = lower sulfur content, sour = higher sulfur content), and metals content, along with other characteristics, collectively result in varying economic attributes. In many cases, these factors result in the need for such grades to be batched or segregated in the transportation and storage processes, blended to precise specifications or adjusted in value.
CryogenicVery low-temperature facility such as those used to store natural gas,
Cryogenic expander processThe cryogenic expansion process is one of the primary techniques (the other being lean oil absorption) used for methane separation, i.e., the actual separation of methane (=natural gas) from NGL components, which is the last step in natural gas processing. Cryogenic expansion involves the rapid cooling of natural gas via expansion to approximately negative 120 degrees Fahrenheit. At this temperature, ethane and the other NGL components condense out of the natural gas stream, while methane remains in its gaseous form. Most modern processing plants use the cryogenic expander process to extract NGLs.
CyclingA storage process in which the same quantity of gas is into and withdrawn from storage within a prescribed period.
DehydrationDehydration is the process of removing water found in saturated natural gas. If left in the natural gas stream during long-haul transportation, water can form ice and corrosion inside pipelines. To meet transportation standards, natural gas is dehydrated to remove any water from the natural gas stream.
Dry natural gasNatural gas is classified as “dry” or “wet” depending on the amount of NGLs present. Dry or lean natural gas contains less than 1 gallon of recoverable NGLs per Mcf of gas (GPM) and is composed primarily of methane. The amount of NGLs contained in the natural gas stream can vary depending upon the region, depth of wells, proximity to crude oil, and other factors.
EthaneOne of six marketable products (excluding condensate and sulfur) produced from the NGL stream (see NGL). Ethane (also known as C2) is typically the second-largest component of natural gas (methane is the largest). It is primarily used as a feedstock for ethylene production by the petrochemical industry. Thus, the demand for ethane is tied closely to ethylene production, which, in turn, is tied to demand for plastics, or more broadly speaking, the health of the overall economy.
Methane and ethane are sometimes referred to as “dry gas” or “natural gas” because these two hydrocarbons make up over 95% of the gas that is delivered to city gates for use as fuel.
Ethane extractionNatural gas processors will choose to extract (i.e., separate) ethane from the natural gas stream when processing economics are favorable (i.e., when ethane is worth more as a distinct product than as part of the natural gas stream).
Ethane rejectionEthane rejection occurs when ethane is sold as natural gas at fuel value rather than being extracted and used as a petrochemical feedstock. A natural gas processor will likely choose, if given the option, to reject ethane (i.e., leave it in the natural gas stream) rather than extract it, when the processing margin (specifically the ethane margin) turns negative or uneconomic (i.e., below a plant’s fixed operating costs). If the processor is unable to reject ethane under this scenario, the company would likely incur a loss. To note, the remainder of the NGL stream (i.e., propane+) is still processed. Most modern processing plants have the ability extract heavier NGL components, but leave ethane in the natural gas stream when processing economics are unfavorable.
EthyleneEthylene is a building block for polyethylene, which is the most popular plastic in the world. Ethylene is the simplest olefin produced by the petrochemical industry.
Fee-based processing contractsAn example of a fee-based processing contract is when a MLP receives a fee for the volume of natural gas that flows through its processing plant. Gross margin is directly related to the volume, not the price, of the commodity flowing through the system and the contracted fixed rate. (see Midstream Service Contract-Fee and Midstream Services).
FeedstockThis is the raw material used by steam cracker plants in the production of ethylene, propylene, and butadiene (also known as olefins). Feedstock is also commonly referred to as “feedslate.”
Field storageA subsurface reservoir, usually a depleted natural gas field, used for storing natural gas.
Firm and interruptible transportation revenuesUnder a firm transportation contract, the customer pays a capacity reservation charge to reserve pipeline capacity at certain receipt and delivery points along the pipeline systems, plus a commodity and fuel charge on the volume of natural gas actually transported. Firm services have a higher priority than interruptible services. Firm service contracts generally have a term of over a year;
Under an interruptible transportation contract, the customer pays less but gets to transport gas only when capacity is available. Interruptible service is not a guaranteed service. The pipeline operator can generally cease the performance of the service with short or no notice (e.g., if pipeline capacity is required to serve a higher priority customer).
Firm and interruptible storage revenuesUnder contracts for firm storage services, the customer reserves and pays for a specific amount of storage capacity, including injection and withdrawal rights, for a specified period of time;
Under contracts for interruptible storage services, the customer pays to store gas only when capacity is available and used.
Frac spreadWhen natural gas reaches a processing plant, it usually contains a mix of different hydrocarbons. One component is methane (CH4), the lightest molecular component of the raw gas stream. The other hydrocarbon components are called natural gas liquids or “NGLs” and include ethane (C2H6), propane (C4H8), n-butane (C4H10), Iso-butane (C4H10), and natural gasoline (C5 and C6 molecules). Natural gas processors separate the raw gas stream into these various components. Frac spread is the difference in price between the natural gas and natural gas liquids on a BTU-equivalent basis. See also definition for processing margin. The sale of the processed gas should be more profitable than the cost of the unprocessed gas, otherwise it is unprofitable to process it.
Fractionation spread is the difference between the value received for liquids recovered from natural gas in comparison to the amount received for the equivalent MMBtu's of natural gas if unprocessed.
FractionationNGLs are hydrocarbons that are separated from natural gas through various processes at natural gas processing plants. NGLs are then further refined or fractionated into separate liquids (i.e., ethane, propane, iso-butane, normal butane, LPG and natural gasoline) at fractionation facilities. Fractionation is the separation of a commingled NGL stream (y-grade) into individual purity components.
FracturingFracturing is a process that typically involves the pumping of water (at very high pressures) to create an extensive crack in the rock formation. The crack in the rock exposes an increased surface area that allows a greater amount of natural gas to be produced.
Fuel oilFuel oil refers to the heaviest commercial fuel that can be obtained from crude oil. Its weight exceeds that of natural gasoline or naphtha. For example, diesel is a type of fuel oil.
Full recoveryFull recovery refers to normal operating conditions when a processing plant is extracting both ethane and the heavier NGL components.
GatheringRefers to low pressure 4- to 12- inch diameter pipelines that connect gas wells to larger diameter trunk lines. Gathering lines are more expensive than trunk lines because incremental connections to new wells must continually be made to offset depletion from existing wells.
Gallons of recoverable NGL per Mcf (GPM)GPM refers to the amount of NGLs contained in the natural gas stream and is dependent upon the region, depth of wells, proximity to crude oil, and other factors.
Gas oilGas oil is considered a heavy feedstock used in ethylene production. Gas oils include diesel fuel, heating fuel, and light fuel oils.
Header SystemA header system is the primary pipeline in a natural gas storage facility that transports gas from the storage caverns to and from each interconnecting pipeline.
Heavy feedstockHeavy feedstock consists primarily of hydrocarbons derived from crude oil sources such as heavy naphtha and gas oil. If a heavy feedstock is used in the production of ethylene, the byproducts (excluding ethylene) include propylene and butadiene as well as heavier hydrocarbons known as aromatics (i.e., C5+) suitable for gasoline blending.
Heavy naphthaHeavy naphtha, which is composed of heavier hydrocarbons found at the bottom of the naphtha splitter, is classified as heavy feedstock.
Henry HubAn interstate pipeline interchange that also serves as a delivery point for Nymex natural gas futures contracts; located in Vermilion Parish, LA; Many natural gas contracts are priced based on the Henry Hub benchmark price.
Held by Production (HBP)If an oil or gas well successfully produces during the primary term of the lease, the lease is automatically extended and considered held by production. The lease will remain valid as long as the property keeps producing a minimum quantity of oil or gas as previously negotiated in the lease.
HydrocarbonAn organic compound made up of carbon and hydrogen atoms used as sources of energy and including natural gas, coal and crude oil.
Injection seasonApril 1 through October 31. Months during which producers and pipelines inject natural gas into storage facilities in preparation for winter. U.S. capacity was ~4 TCF as of 2006. See also withdrawal season.
Interstate Transportation – Basic RulesInterstate Transportation is the transportation of gas by a pipeline which crosses state boundaries. As such, the service: 1) Must be offered on a non-discriminatory basis; 2) Must allow firm contract holders to release to other parties so some of the reservation costs paid by the firm shipper ma be recovered when the capacity would otherwise not be used; 3) Customers must be able to change their firm receipt and delivery points. All other receipt points must be made available to the customers on an interruptible basis; and 4) Customers have rights beyond their contract path but within the same rate zone.
IsobutaneOne of six marketable products (excluding condensate and sulfur) produced from the NGL stream (see NGL). Isobutane (also known as iC4) has the same molecular formula as normal butane, but a different structural formula (i.e., atoms are rearranged). Isobutane is used as a feedstock for the petrochemical industry in the production of isooctane--a clean source of octane enhancement for gasoline. Concerns about the depletion of the ozone layer by Freon gases have led to increased use of isobutene as a gas for refrigeration systems, especially in domestic refrigerators and freezers and a propellant an aerosol sprays.
Keep-wholeIn a keep-whole arrangement, the processor retains title to the NGLs produced from the natural gas stream to sell at market prices. By extracting the NGLs, the volume and BTU content of the dry gas is reduced. This is referred to as “shrinkage.” The processor must then replace the BTUs that it extracts from the natural gas stream (via the extraction of NGLs) with equivalent BTUs of natural gas (i.e., to make whole). A holder of a keep-whole contract would be long NGL prices and short natural gas prices. See Midstream service contract: Keep Whole
Land and lease fuleNatural gas used near the production site for drilling operations and for facilities such as heaters and field compressors.
Lean natural gasDry or lean natural gas contains less than 1 gallon of recoverable NGLs per Mcf of gas (GPM) and is composed primarily of methane.
Lean oil absorption methodThe lean oil absorption method is one of the primary techniques (the other being cryogenic expander process) used for methane separation, that is, the actual separation of methane (i.e., natural gas) from NGL components, which is the last step in natural gas processing. The absorption method uses specially formulated oils to “absorb” heavier NGL components from the incoming gas stream. As natural gas passes through the absorption tower, NGLs are captured by the absorption oil, which has an affinity to NGLs. The absorption oil is then fed into oil stills where the mixture is heated above the boiling point of NGLs but below that of oil, thereby separating the NGLs from the absorption oil.
Light feedstockLight feedstock is commonly defined as hydrocarbon feeds derived from natural gas sources (i.e., ethane, propane, and butane); however, it can also refer to light naphtha. Light feedstock produces lighter olefins including ethylene, propylene, and butadiene.
Light naphthaLight naphtha, which is composed primarily of C5 hydrocarbons (i.e., natural gasoline) is generally classified as a light feedstock.
Liquid petroleum gases (LPG)One of six marketable products (excluding condensate and sulfur) produced from the NGL stream (see NGL). Sold as fuel, LPG is a mixture of propane with smaller amounts of propylene, butane and butylenes. Created as a by-product during the refining of crude oil or from natural gas. LPG is not NGL. It contains propane, isobutane and/or butane. NGL stands everything from ethane (C1) thru C5+.
Liquified Natural Gas (LNG)Natural gas converted into a liquid form by cooling it to −162 °C (−260 °F) (at 1 atmosphere). LNG is cost efficient to transport over long distances where pipelines do not exist. The production units that cool the gas down are known as “trains”. Once the LNG arrives at its destination, it must be processed in a “regasifica¬tion terminal,” which turns it back into its natural gaseous state.
LoopingLaying additional pipeline next to an existing pipeline to increase the capacity of the system.
Marketed natural gas productionMarketed natural gas production refers to gross natural gas withdrawals from reservoirs less the natural gas used for re-pressuring, quantities vented and flared, and non-hydrocarbon gases removed in treating or processing operations.
Methane (CH4)Methane is the simplest alkane (chemical compounds that consist only of hydrogen and carbon atoms and are bonded exclusively by single bonds, i.e., they are saturated compounds). Methane is the principal component of natural gas, and probably the most abundant organic compound on earth. The relative abundance of methane makes it an attractive fuel. Methane is used in industrial chemical processes and may be transported as a refrigerated liquid (liquefied natural gas, or LNG). Methane is important for electrical generation by burning it as a fuel in a gas turbine or steam boiler. Compared to other hydrocarbon fuels, burning methane produces less carbon dioxide for each unit of heat released.Methane, commonly known as natural gas, is the primary component of natural gas (equivalent to dry natural gas). Pipeline quality gas (i.e., gas with impurities removed) is 95% methane. Methane is colorless, odorless and flammable and a relatively potent greenhouse gas. Methane is not a NGL – it cannot be condensed under normal processes, because the boiling point is so low. It is normally used for heating fuel.
See also coalbed methane.
Methane and ethane are sometimes referred to as “dry gas” or “natural gas” because these two hydrocarbons make up over 95% of the gas that is delivered to city gates for use as fuel.
Methane separationMethane separation is the actual separation of the methane (i.e., natural gas) stream from NGL components. Approximately 90% of the natural gas processing plants in the United States use one of the following techniques for methane separation: (1) absorption method or (2) cryogenic expander process.
MCF, MMCFA volume unit of a thousand (MCF), a million cubic feet (MMCF), a billion cubic feet (BCF) or a trillion cubic feet (TCF) commonly used to measure gas. 1 MMCF has a heating value of 1 MMBTU.
Midstream service contract: FeeFee-Based; processor receives a fixed fee per unit of natural gas gathered, compressed and treated; risk to producer highest, risk to processor lowest.
See Fee-based processing contracts
Midstream service contract: POPpercentage of proceeds; Processor receives a % of NGLs and gas as a processing fee; producer keeps their % in-kind or asks processor to sell NGLs and gas and receives cash; risk to producer 2nd highest, risk to processor 2nd lowest.
See Percentage of Proceeds.
Midstream service contract: POLpercentage of liquids; Processor receives a % of NGLs as a processing fee; producer keeps their % in-kind or asks processor to sell NGLs and receives cash; risk to producer medium, risk to processor medium
See Percentage of Proceeds.
Midstream service contract: Margin sharingBoth producer and processor share the value difference between NGLs and gas; risk to producer 2nd lowest, risk to processor 2nd highest
Midstream service contract: Keep WholeProcessor retains extracted NGLs as a processing fee; processor has to purchase and return to producer gas to replace fuel & shrinkage; ; risk to producer lowest, risk to processor highest.
See Keep Whole
Midstream ServicesFirm Transportation: the highest quality transportation service offered to customers under a filed rate schedule that anticipates no planned interruption.
No-Notice Service: bundled, city-gate service allowing customers to receive gas on demand to meet peak service needs subject to delivering supplies to the pipeline.
Interruptible Transportation: service subject to interruption at the option of the pipeline.
Storage Service: firm or interruptible service that allows customers to store natural gas that has been transferred from its original location.
Pooling Service: firm or interruptible service that allows customers to aggregate natural gas from many receipt points to serve a number of contracts without tying a particular receipt point to a particular contract.
Parking Service: an interruptible service allowing a customer to request the pipeline: 1) hold, on its system, gas quantities the customer has delivered under a transportation agreement; and 2) return such gas quantities at the customer’s request.
Loan Service: an interruptible service allowing a customer to: 1) receive gas quantities from the pipeline; and 2) return such loaned quantities of gas to the pipeline at the point in which the gas was borrowed.
Operational Balancing Agreement (OBA): an agreement between a natural gas pipeline and parties at delivery or receipt points, in which parties agree to specified procedures for balancing between nominated levels of service and actual quantities.
Pre-Determined Allocation Agreement (PDA): method for designating prior to gas flow the method for allocating natural gas at a point among shippers or to a specific shipper (as opposed to OBAs, which typically allocate imbalances to the operators of the facilities).
Imbalance Resolution: Mechanism to resolve the differences between the inputs for a shipper and the outputs. If a point has an OBA then the imbalance resolution provisions address the difference between the amount scheduled and confirmed and the physical amount measured.
NaphthaNaphtha is considered a heavy feedstock used in ethylene production. Naphtha is also a highly flammable liquid hydrocarbon mixture that is produced through crude oil distillation (i.e., derived from crude oil).
Heavier hydrocarbons in the C5 to C7 range are sometimes referred to as “light naptha”. The heavier gasoline is also referred to as naptha. Naptha is generally between C5 and C12. It does not occur in great quantities in natural gas sourced liquids, but is found more in crude oil or as an intermediate product in a refinery.
Natural gas liquids (NGL)Natural Gas Liquid refers to the lighter, condensable, hydrocarbons. ”Lighter” hydrocarbons are those with less carbon atoms. Methane is the lightest because it has one carbon and 4 hydrogen atoms. Lighter also means lower boiling points.  This is important because these liquids are processed and separated by boiling. Propane and butane are the “heavies”. Depending on the gas pressure, the heavies will condense and constitute the liquid or "wet" portion of the natural gas. NGLs are much more valuable as raw material for further processing than as fuel for simple combustion.
Six marketable products (excluding condensate and sulfur) are produced from the NGL stream: ethane, propane, butane, isobutane, LPG (liquefied petroleum gas) and natural gasoline. NGLs are used as feedstocks for petrochemical plants and refineries, and for heating. NGLs are extracted from the raw natural gas stream into a liquid mix (consisting of ethane, propane, butane, isobutane, and natural gasoline). The NGLs are then typically transported via pipelines to fractionation facilities. There are two principal techniques for removing NGLs from gas: the absorption method and the cryogenic expander.
See also Gas and NGL grades and classification.
Natural gasolineOne of six marketable products (excluding condensate and sulfur) produced from the NGL stream (see NGL). Natural gasoline (also known as C5) is extracted from natural gas and is a mixture of liquid hydrocarbons (i.e., primarily pentanes and heavier hydrocarbons). It is primarily used as a blend stock for motor gasoline, raw feedstock for aviation gas, nylon, plastics, explosives and cosmetics. Much more volatile and unstable than commercial gasoline
NGL storageNGLs must be stored under pressure to maintain their liquid state. The lighter the product (e.g., ethane), the greater the pressure that must be maintained. Large volumes of NGLs are stored in underground caverns constructed in salt or granite. Product is also stored in above ground tanks. Natural gasoline can be stored at relatively low pressures in tankage similar to that used to store motor gasoline. Propane and butane are stored at much higher pressures in steel spheres, cylinders, “bullets” or other configurations. Ethane is stored at very high pressures, typically in salt caverns. Storage is especially important for NGLs as supply and demand can vary materially on a seasonal basis.
NGL yieldThe NGL yield represents the amount of NGLs present in natural gas
Non-associated gas.Non-associated gas is natural gas that is free from contact with crude oil (e.g., dry natural gas is non-associated gas).
Normal butaneNormal butane (also known as C4) is used as a petrochemical feedstock for the production of ethylene and butadiene (used to make synthetic rubber), as a blendstock for motor gasoline, and as a feedstock to create isobutane through isomerization. (The isomerization process is accomplished by heating normal butane in the presence of a catalyst to create isobutane.)
OlefinAn olefin is any unsaturated chemical compound containing at least one carbon double bond. The petrochemical industry produces three primary olefins: ethylene, propylene, and butadiene.
Parking; Parking and Lending (PAL) servicesTemporarily storing gas for a pipeline customer so the customer does not have to sell the gas at a low price. The customers retain title to the gas.
PCPThe progressing cavity pump (PCP) is a standard lift system for oil production as well as sucker rod pumps and EPS pumps. The application of PCPs has been limited for decades only to the vertical wells to handle oil fluids featuring high viscosity and high sand cut.
Percentage-of-proceeds (POP) processing contractsThe processor gathers and processes natural gas on behalf of producers. The MLP sells the resulting residue gas (dry, pipeline quality gas) and NGLs at market prices and remits to the producer an agreed upon percentage of the proceeds based on an index price. A typical contract would entitle the producer to 80% of the proceeds from the sale of natural gas and NGLs through the plant, while the remaining 20% would be assigned to the processing plant operator. Accordingly, POP contracts share price risk between the producer and processor. Gross margin increases as natural gas prices and NGL prices increase and decrease as natural gas prices and NGL prices decrease. A percentage-of-liquids (POL) contract is a type of POP contract where the processor receives a percentage of the NGLs only.
PetrochemicalsPetrochemicals are chemical compounds that are made from raw materials, which are derived from petroleum or hydrocarbons. Some examples of petrochemicals include: ethylene, propylene, and benzene.
Petroleum Administration for Defense Districts (PADD)The North American crude oil market is sub-divided into five regions known as Petroleum Administration for Defense Districts or PADDs. Each region exhibits different production and consumption characteristics, with the Gulf Coast region (PADD 3) accounting for over 50% of crude oil production in North America.
PADD1=East Coast; PADD2=Midwest; PADD4=Rockies; PADD5=West Coast, AK, HI
Pipeline quality gasGas with impurities removed; 95% methane.
PolyethylenePolyethylene, which is the primary derivative of ethylene, is the most popular plastic in the world. Polyethylene comes in several different grades, depending on its density and molecular branching. The three most common grades are low density polyethylene, linear low density polyethylene, and high density polyethylene. Low density polyethylene is used to create thin film plastics such as plastic bags and film wrap. High density polyethylene is used to create sturdier plastics such as detergent bottles, garbage containers, and water pipes. Since approximately 50% of ethylene is polymerized into polyethylene, polyethylene production is an important proxy for ethylene demand, and hence ethane/NGL demand.
Pricing differentialThe difference between a pipeline’s contractual cost of gas supply and a market price.
Processing plantsNatural gas processing involves the separation of raw natural gas into “pipeline quality” gas and natural gas liquids. Gas processing plants separate NGLs into separate liquid products including ethane, propane, butane, isobutane, and natural gasoline. There are two kinds of gas processing plants: field plants (close to the production source) that remove NGLs from raw natural gas and straddle plants (near gas pipelines) that reprocess NGLs to remove additional NGLs.
Processing marginThe processing margin is the difference between the price of natural gas and a composite price for NGLs on a BTU-equivalent basis. See also frac spreads.
PropaneOne of six marketable products (excluding condensate and sulfur) produced from the NGL stream (see NGL). Propane (also known as C3) is the third largest component of the natural gas stream (preceded by methane and ethane). It is primarily used as a feedstock by the petrochemical industry to produce ethylene and propylene. The bulk of remaining propane consumption is related to its use as a heating fuel in the residential and commercial markets. Hence, demand for propane is closely tied to the overall health of the economy and fluctuations in weather patterns.
Propane Dehydrogenation (PDH)Propane Dehydrogenation (PDH) or propane dehydration is a chemical process used to directly convert propane to propylene. PDH makes economic sense when natural gas is cheap vs. oil and companies produce ethylene from ethane. This reduces the amounts produced of propylene and creates a shortfall that PDH can fill.
Propylene (C3H6)Like ethylene, propylene (also known as propene) is an important chemical used in the manufacture of plastics. It is the second simplest olefin behind ethylene. Propylene, which is used in paints, detergents, lubricants, foam insulation, and fibers.
Propylene is a byproduct when ethylene is produced from crude oil by naphtha-fed steam crackers. Propylene is also a byproduct when propane is produced by ethane-fed steam crackers, but propylene output rates from ethane-fed crackers are negligible.
When natural gas is cheap vs. oil, companies produce ethylene from ethane, but this reduces the amounts produced of propylene.
Raw NGL MixRaw NGL mix or “y” grade refers to the heavier NGL components that are extracted via natural gas processing. The resulting NGL mix is commingled product consisting of ethane (depending on whether ethane rejection took place), propane, butane, isobutane, and natural gasoline. It is not until fractionation, the next step in the NGL value chain, that the raw NGL mix is further separated into individual NGL components.
Residue natural gasResidue or dry natural gas refers to the resulting natural gas stream after heavier NGL components have been extracted through processing. Residue natural gas consists primarily of methane and ethane (depending on processing economics) and is suitable for transportation in natural gas pipelines.
SpursSmall, lateral pipelines that branch out from a main line to provide connections.
Steam crackerA steam cracker is a petrochemical plant that uses either light feedstock (i.e., ethane, propane, LPGs) or heavy feedstock (i.e., heavy naphtha, gas oil), depending on plant configuration and economics to create ethylene, propylene, and other petrochemicals. In order to create these petrochemicals (e.g., ethylene), saturated hydrocarbons need to be broken down (or cracked) into smaller, unsaturated hydrocarbons in a process known as stream cracking. Steam cracking is accomplished by heating the hydrocarbon feedstock diluted with steam in a furnace to approximately 650-850 degrees Celsius. Subsequently, the mixture is rapidly cooled to 400 degrees Celsius to stop the reaction. Water is then injected to further cool the mixture; thereby creating a condensate, rich in ethylene and various quantities of other byproducts (depending on the type of feedstock).
Straddle plantA natural gas processing plant constructed near a transmission pipeline downstream from the fields where the gas in the pipeline has been produced; also called an “on-line” plant. It does not purchase and sell natural gas, bur only provides a processing service for the gas owner.
Stripper wellsNatural gas wells that produce less than 6 MCF per day og gas, primarily from onshore reserves.
Take or pay clauseUnder a take-or-pay clause the contracted amount of gas that the buyer is obligated to pay for, regardless of whether the buyer takes delivery of that amount of product.
Toluene (C7H8)Toluene is a type of petrochemical commonly used as a solvent used for paints, lacquers, printing ink, etc. The chemical is also used as an octane booster in gasoline.
TreatingRemoval from raw gas from the wellhead of contaminants such as CO2 and H2S2 to allow for safe and efficient transportation and processing. See also amine treating plants.
Tubing headA wellhead is comprised of a casinghead, tubing head and a Christmas tree. The tubing head supports the tubing string, controls the pressure between the casing and the tubing and has connections to control pressure as well as the gas and liquids.
Unconventional Natural Gas ProductionSee explanation under Conventional Gas Production
Utilization factorA ratio of the maximum demand of a pipeline system or part of a system to its rated capacity.
WellheadA wellhead is comprised of a casinghead, tubing head and a Christmas tree. See definitions for each.
Wellhead priceThe price received by the producer for sales at the well. Price includes the charge for natural gas liquids removed from the gas as well as gathering and compression charges.
Wet natural gasNatural gas is classified as “dry” or “wet” depending on the amount of NGLs present. Wet or rich natural gas contains at least 1 gallon of recoverable NGLs per Mcf of gas (GPM) and up to as much as 5-6 GPM. The amount of NGLs contained in the natural gas stream can vary depending upon the region, depth of wells, proximity to crude oil, and other factors.
Withdrawal seasonNovember 1 through March 31. The span of time during which gas storage quantities are depleted for consumption, primarily for heating. See also injection season.
X Grade; X GradeY grade is a common term in the industry for “easily” condensable. X and Y grade hydrocarbons can be stored in a liquid state under pressure. Y grade can be stored at a pressure much less than X grade, which makes it easier to move in a liquid state.
See also Gas and NGL grades and classification.