April 28, 2011

Natural gas liquids play a greater role in oil and gas activity

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Production of natural gas liquids (NGLs) set an all-time record in 2010, topping 2 million barrels per day. NGLs, which are included along with crude oil and lease condensate in petroleum production data, are a growing share of total U.S. petroleum production. Ethane and propane production account for most of the increase in NGLs during the past five years.

NGLs, the hydrocarbons components extracted when natural gas is processed in a natural gas treatment facility, include ethane, propane, and butanes. Ethane and propane account for about 40% and 30%, respectively, of the volume of NGLs extracted in natural gas plants each year. NGLs are important inputs to many industrial activities:

• Ethane: petrochemical building block and is used to produce ethylene, a common feedstock in plastics manufacturing
• Propane: petrochemical feedstock for making ethylene and propylene, although used primarily as a fuel
• Normal butane: petrochemical feedstock and a refining blend stock for gasoline
• Iso-butane: refining feedstock and a component of gasoline octane blends

Quality standards restrict the composition of the natural gas that is allowed into major transportation pipelines. Natural gas treatment facilities adjust the concentration of the various components in natural gas to meet these requirements, which often involves the removal of NGLs from the mix. Restrictions vary from pipeline to pipeline and are usually a function of a pipeline system's design and the markets that it serves.

Once NGLs have been removed from the natural gas stream, they are typically sent to a fractionation unit and separated into the components mentioned above. Because NGLs sell at a premium to natural gas, there is often an economic incentive for operators to focus exploration and development activities on areas that have natural gas with a high liquids content. This "liquids boost" is especially important in the development of shale gas plays due to the relatively high cost of drilling and completing a shale gas well. The high NGL content of many shale plays has made it economical for operators to continue to aggressively develop of shale gas resources during periods of low natural gas prices.