Tuesday, March 5, 2013

Deep Cut Gas Plants - Western Canada

With permission from FirstEnergy Capital, and the authors Steven Paget and Elaine Williams, posted below is portions of their article on Deep Cut Gas Plants that was written in February 2012, with a specific focus on Alberta and Northeast British Columbia, Canada. Article subsequently updated and modified by Brad Mattson.

What Are Deep Cut Gas Plants?
Deep cut gas plants are field gas processing plants that have a special processing capacity to extract more liquids. On average, deep cut plants in Alberta extract 3.7x more liquids for a given volume of gas than ‘shallow cut’ plants. This is because of their special processing units and because these plants are located in the areas in the basin where gas is more liquids-rich (see maps of deep cut plants below).

The most common processing unit that is particular to a deep cut plant is a turbo-expander, a sort of reverse compressor, which rapidly decompresses and cools the natural gas so that the liquids drop out of the gas stream.

There are two types of deep cut plants. The first is built "from scratch" to develop a field, and includes all the field compression, gas gathering and processing systems. The second kind is built after the field has been developed in order to extract the liquids left behind by the shallow cut plants. A conversion of a shallow cut plant to a deep cut plant would have similar characteristics to the second kind of plant. See below.

Straddle plants use some of the same type of equipment as deep cut plants but straddle plants sit on the main gas gathering lines, "downstream" of field gas processing plants. Straddle plants are designed to extract the liquids that upstream facilities miss (even deep cut plants because of scale efficiencies) but quantities of liquids are low enough to meet pipeline specification. The average single straddle plant processed 873 mmcf/d in 2011, while the average single deep cut plant processed 89 mmcf/d, only about 1/10 the amount processed by the average straddle plant. Although larger, straddle plants extract a lower amount of liquids per mcf, as shown in the attached chart, "Alberta: Gas Plant Liquids Recoveries by Source".

Most Alberta plants then ship an NGL mix to processing plants (fractionators) at Edmonton/Ft. Saskatchewan, [and now Harmattan and Empress based on location and availability] for separation into ethane, propane, butane and condensate. NGL mix from northeast British Columbia is delivered onto the Pembina system either at Milepost 73 or through the Younger Extraction Plant. There are a few deep cut gas plants that have their own fractionators, that is, they process the NGL "mix" into useable products right at the plant. [However, this is changing, given the restrictions of accessing limited frac capacity in the Edmonton region]. Harmattan is unique in having these combined capabilities.

In total, deep cut field plants extract about 1/3 of the total NGLs produced in Alberta; straddle plants extract about 1/2 of the total NGLs and shallow cut plants extract about 1/6 of the total. Therefore, NGL extraction in Alberta is dominated by deep cut and
straddle plants. At present, we calculate that the existing deep cut plants in Alberta are running about half-full (at the gas inlet). Liquids capacities at these plants are approximately 62% full.

Biggest Deep Cut Gas Plants
We have attached a list of deep cut plants in Alberta: the two largest plants in terms of gas throughput are in the Elmworth field in northwest Alberta. Together, Alberta's deep cut gas plants process 3.8 bcf/d of raw gas, and produce 175,000 bbl/d of natural gas liquids and condensate [2011 statistics].

What’s The Point of Building Deep Cut?
Why build deep cut, or, in other words, why not let straddle plants get all the gas liquids? The reason is that once gas is put onto the TransCanada NGTL system, the liquids within that gas are owned by the delivery point shipper (the consumer at the end of the line). Upstream producers therefore have an incentive to ensure those liquids never make it onto the NGTL system, and this is behind the boom in the construction of liquids extraction facilities.

The chief alternative to building deep cut facilities in Western Canada is for producers to ship the liquids-rich gas to U.S. markets, where liquids pricing is typically higher [true for propane and butane; but not for condensate] (note: Conway, in Kansas, is the best proxy for Chicago propane prices). [in 2013 and 2014, market pricing reversed due significant unplanned shortage of Propane in the Canadian marketplace.] However, regardless of price, and limited availability of dedicated NGL pipelines from Canada to the US, natural gas pipeline systems will continue to have maximum liquids content to maintain specification.

As anywhere from 55 to 75% of any deep cut plant’s liquids production is ethane, it is important to look at Alberta’s ethane market. Markets are balanced and there is no means to easily transport ethane from the province. There is no market price for ethane in the province; it is sold under long-term contracts to petrochemical companies. Those contracts give the deep cut plant operators a fee in exchange for the ethane, and this fee includes the loss in heating value of the gas. Ethane prices are therefore highly correlated with natural gas prices, but the net effect is that the gas producer usually gets a flat per-barrel margin from the petrochemical company.