What are Natural Gas Liquids (NGL)?

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Definition:

Natural gas liquids, or NGLs, are petroleum products that have fewer carbon atoms than crude oil, but more than natural gas.

🤔 Understanding NGLs

Natural gas liquids (NGLs) are hydrocarbons, which are molecules consisting of hydrogen and carbon. Hydrocarbons are commonly classified as petroleum products, which can be thought of in terms of how heavy or light they are. The more carbon atoms in the molecular chain, the heavier the product is. At one end is crude oil, which is a liquid at ordinary temperatures and surface pressure. It has enough carbon and hydrogen to keep it from evaporating under these conditions. At the other end is methane, which only has one carbon atom. Between crude oil and methane are several products that lie in the middle, called NGLs. They can be blended with crude oil as a liquid, mixed with methane as a gas, or sold as separate products.

Example

If you have ever seen a transparent cigarette lighter, you were looking at a natural gas liquid. Within the container, you can see how much fuel is left. You can turn the lighter in your hand and watch the liquid move around. But when you press the release, a liquid doesn’t come out. Instead, the fuel becomes a gas, and a spark lights it on fire. These types of products, that switch from a liquid to a gas with small changes in pressure, are called natural gas liquids.

Takeaway

NGLs are sort of like swing voters…

There are people whose political views are far to the left or way on the right of the spectrum. But there are also a lot of people in the middle. In some circumstances, they may agree with one party. On other issues, their views might make them act like the other. Subtle changes in the conditions that are present at the time of an election can swing them from one camp to the other. Similarly, slight changes can turn NGLs into a gas or a liquid.

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What is the difference between NGL and LNG?

Although the letters are almost the same, there is a big difference between a natural gas liquid (NGL) and liquefied natural gas (LNG).

Natural gas liquids are not actually made from natural gas, which is basically just methane. They are hydrocarbons with more hydrogen and carbon than natural gas contains. Petroleum companies and refineries can extract these NGLs out of oil and gas production.

On the other hand, LNG is natural gas. Because methane is so light, it stays in gaseous form even at extremely low temperatures or under very high pressure. To turn natural gas into a liquid, you have to cool it below its boiling point of 270 degrees below zero Fahrenheit.

That cooling process happens at a liquefaction plant, which is usually near a port. Then, the liquified natural gas gets pumped into a marine tanker for delivery to almost anywhere in the world.

At the delivery point, the LNG gets warmed up and turns back into a gas. From there, it flows down a network of pipelines into local distribution systems that heat homes or generate power.

What are the types of NGL?

When an oil and gas company captures gaseous hydrocarbons from the ground, there are several different molecules mixed in that production stream. Those different molecules are defined by the amount of carbon and hydrogen that are bound together.

The shortest hydrocarbon chain has only one carbon atom, which has four hydrogen atoms bonded to it. That is called methane. When people talk about natural gas, they are usually referring to a gas almost entirely composed of methane, although a few slightly heavier molecules may be mixed in.

If natural gas is pure methane, it is called dry natural gas. When some NGLs stay in the mix, it is called wet gas. In some markets, there are some NGLs intentionally left in the natural gas mix, so that the product has more energy content and burns hotter. But, in most cases, NGLs are removed from the natural gas stream and sold separately.

By exposing the mixed gas to different temperature and pressure conditions, the various molecules turn to liquids at different points. This process is called fractionation, which is done in a cryogenic air separation unit.

First, the heaviest hydrocarbon chains become liquid and fall out of the gas. As the temperature goes down, the next longest carbon chains enter their phase changes. In this way, a fractionator can isolate and extract each of the different molecules and sell them as separate products.

Alternatively, longer carbon chains can be broken into smaller ones through a process called cracking. With enough effort, a refinery can create NGLs out of heavier products.

Four primary NGLs get sold as unique petroleum products. The use for each varies. But these NGLs usually have a higher value than the methane they are separated from. So, it makes good business sense to pull them out rather than to sell them at natural gas prices within the gas mixture. Here are the primary NGLs:

Ethane

Consisting of two carbon atoms, ethane is the second lightest hydrocarbon. For many years, it stayed mixed with methane, which was used for heating, power generation, and petrochemical feedstock.

When it is separated, ethane is almost exclusively used for industrial applications. The most notable use is for the manufacturing of plastic products. However, it is also used to make antifreeze and detergent. Another usage of ethane is to accelerate the ripening process for fruits and vegetables.

Propane

Propane has three carbon and eight hydrogen atoms. Because it is slightly heavier than methane and ethane, it requires less pressure to become a liquid. Propane is regularly sold as an end-use product for residential use.

Most gas stoves, dryers, and hot water tanks burn propane in people’s homes. If you use a gas grill for your barbecues, it almost certainly has a propane tank attached to it. Propane can even be used for home heating in places where cheaper natural gas is not available.

Propane has a boiling point of around -44 degrees Fahrenheit, which means that places with extremely cold weather may sometimes find that their propane tanks don't release any gas.

There are also commercial and industrial uses for propane. It may be used in commercial kitchens, laundromats, and swimming pools. Or it could be used to heat a commercial building or provide on-site heaters during construction.

You can even use propane to power tools, forklifts, and vehicles. Industrial uses also include use as a petrochemical feedstock, primarily in the manufacturing of propylene products.

Butane and Isobutane

Butanes have four carbon and 10 hydrogen atoms. They evaporate at the same point that water freezes (32 degree Fahrenheit).

You are probably most familiar with normal butane as the fluid in a cigarette lighter. It is also commonly used for campfire stoves and torches. If you’ve ever had a crème brûlée, the sugar on top was probably caramelized with a butane torch.

Butane can be mixed with propane to create liquefied petroleum gas (LPG), which is sometimes used to fuel vehicles. In its purest form, butane is used as a refrigerant in household appliances and air conditioning units. It is also used in petrochemical processing, primarily to make synthetic rubber.

Pentane

With five carbon and 12 hydrogen atoms, pentanes are the heaviest of the natural gas liquids. This hydrocarbon is most commonly used in the manufacturing of polystyrene foam and sprayed on heating pipes and in refrigerators as insulation. They also serve as a solvent in many laboratory settings and can be used to assist in the production of bitumen in the Canadian oil sands.

Pentanes Plus

Pentanes sometimes include slightly heavier molecules, usually with no more than 10 carbon atoms. These pentane plus products have names like natural gasoline, naphtha, or gas plant condensate. Such products can be blended with gasoline to make high-octane fuel, or are shipped to chemical plants. In some cases, naphtha is burned for power generation.

What is the NGL market?

Natural gas liquids (NGLs) are produced alongside oil and gas production. Therefore, the supply side of the NGL market correlates to the extraction of oil and gas. The vast majority of all NGLs in the United States come out of natural gas processing plants, which generate mostly ethane and propane.

The rest mostly flow out of crude oil refineries, about half of which is propane. The other products coming out of oil refineries skew toward heavier NGLs, like naphtha.

The market for NGLs tends to be weighted more toward the lighter products. Roughly a third of the market is ethane (used to manufacture plastics), and a third is propane (mostly residential use and some petrochemical feedstock). Butanes make up about a sixth of the NGL market, and pentanes make up the rest.

About half of the NGL stream gets used in petrochemical manufacturing. The next largest use is residential. Almost 20% of all NGL demand goes to heating, cooking, and other personal purposes. Another significant source of demand is to blend NGLs with motor gasoline to create higher octane fuels.

What are the pros and cons of NGL?

Natural gas liquids (NGLs) can be mixed with crude oil, sold with natural gas, or separated and sold as standalone products. How the NGLs are sold depends mostly on the price differences between the options.

There are pros and cons associated with how NGLs are handled.

Removing NGLs is an expensive process. The products themselves require low temperatures or high pressures to store and transport.

Specialized equipment and infrastructure is needed to operate and maintain the NGL market.

NGLs have historically generated higher prices than natural gas. Those higher prices typically justify the cost of removing and transporting the NGLs to market.

What are the challenges in the NGL market?

Starting back in 2006, a series of events led to oil prices beginning to climb. Those higher prices created an incentive for oil companies to find new ways to increase production.

Over the next couple of years, advances in drilling technology opened a floodgate of new resources in Texas, North Dakota, and other parts of the United States. With the ability to turn drill pipes horizontally, the amount of a wellbore in contact with a reservoir increased dramatically.

And with the increased usage of hydraulic fracturing (sometimes called fracking), the flow of oil from nearly impermeable rocks became possible. All of a sudden, shale formations that could not support the cost of drilling and production turned into viable production prospects.

Over the next decade, horizontal drilling and hydraulic fracturing transformed the market for oil. The high price at the time encouraged ever-increasing investment, and re-investment, in the shale patch.

And with every well that was drilled, raw natural gas production soared and the amount of natural gas liquids (NGLs) arriving at the wellhead increased as a byproduct. With an increase in NGL supply, the market cleared at a lower price.

Suddenly, there was more natural gas and NGL production than anyone could use. In recent years, the price of oil has decreased, but production levels have continued an upward climb. Although it is unclear what will happen next, the market for domestic NGL production is saturated.

In the future, there may be a different challenge facing the market. As concerns about climate change continue to increase, some have proposed a ban on fracking. Such a restriction would send shockwaves through the industry, which has become dependent on the practice.

Consequently, the supply of U.S. NGLs would undoubtedly decline A shortage of production volume would put upward pressure on prices.

What’s more, another challenge presents itself to the market for the most significant share of NGL demand – Plastics.

With consumers increasingly disparaging the use of single-use plastics, and giving all plastics a bad name, the need for petrochemicals may start to decrease. And if alternative plant-based products erode the consumer base for those plastics, a lot less ethane and propane would be required.

Therefore, the NGL market may be facing a challenge from both the supply and the demand side of the equation.

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