Click for a transcript of the Natural Gas Processing mini-lecture.
After we've gathered the natural gas from various wellheads and perhaps, brought them to a common point in a gathering system, the next thing that we want to do is kind of twofold. Number one, we want to purify the gas because the gas that goes into the pipeline system has to be about 98% methane with a lot of contaminants removed from that.
But additionally, the processing plants allow us an opportunity to extract natural gas liquids which add to the overall value chain and the actual revenue that can be derived from natural gas.
Here's just a picture of a processing plant up in Colorado. You can see, this is one of the more complex ones.
Now, the basic operations of natural gas processing plants, the first step is to remove the heavy hydrocarbons. Anything that has a specific gravity greater than methane, is considered a heavy hydrocarbon. If you think about it, the raw stream coming out of a natural gas well, is going to have a lot of liquid in it. And the liquid happens to be, for the most part, these natural gas liquids. And so we can't have things like propane or butane ending up in someone's hot water heater.
Likewise, in natural gas-fired power plants, they cannot end up with any of these volatile fuels inside a boiler. They literally can have an explosion that occurs there.
And the other side of this, of course, is that we want these heavy hydrocarbons. They are marketable in the form of ethane, propane, butane, isobutane, and natural gasolines.
Simple processes with a processing plant, things like condensation. This is just, you vary the pressure and temperature of the gas stream itself, and then, you can knock out the natural gas liquids. So, for instance, when you heat something up and cool it off, liquids will drop out. If you put something under high pressure and then you reduce the pressure dramatically, liquids will also drop out of the gas stream.
Some of the towers that we'll talk about, they have oils in there which can actually absorb some of the light hydrocarbons. And those then, get funneled off. And then, fractionation is where we actually take the various liquids that may be combined and break them down into individual fractions. Thereby, forming what we call purity products, things like purity ethane or purity propane, which means the majority of that liquid is actually that hydrocarbon.
We want to purify the gas stream as well. Every natural gas pipeline company has certain standards that you can find on their website within their tariff under their statement of operating conditions. You will see that they have certain limitations on things like water, H2S, or hydrogen sulfide, which is a corrosive.
Carbon dioxide and nitrogen, they simply take up space in the pipeline so they have no heating value and they just do literally waste space in the pipeline. You'd rather be pushing 98% methane than to have a higher percentage of carbon dioxide or nitrogen for that matter.
So some of the processes would be nitrogen rejection, literally, nitrogen is taken out of the gas stream.
Glycol absorption, now this is ethylene glycol. It's essentially antifreeze and it's heated up, and it can be heated up beyond the boiling point of water. So in essence, the gas stream run through a glycol absorption unit would burn the water off so you reduce the water content in the natural gas stream.
And then, also, if there's a higher level of sulfur than should be in the natural gas stream, they have what's known as an amine treater that will remove that as well.
So now we've purified the gas stream at the processing plant, essentially, we should be left with 98% methane to put into the transmission pipeline that what we call the residue point or outlet of the processing plant.
Some of the general types of processing plants. We have simple separator tower type plants, literally, the natural gas flows through the bottom. And because methane is lighter than the other heavy hydrocarbons, it will rise to the top of the column and then be basically recirculated through the plant.
Then you've got what we call bubble trays on each level and as, again, the gas flow goes through there, the heavier hydrocarbons will settle back down on these trays depending on their specific gravities. And then, again, they are piped off into tanks for storage.
As I mentioned earlier, you're going to vary pressure and temperature with reciprocating compressors. Refrigeration units and so-called re-boilers, the re-boilers are going to heat up the gas stream. Obviously, the refrigeration units are going to cool it down. And the entire time, you're pushing the gas through the processing plant using compressors. So again, raise the temperature of the gas, cool it off rapidly, we'll get condensation, and natural gas liquids will knock out of the stream.
Then we have the next step up and these are the more sophisticated processing plants-- cryogenic or what we call cryo plants. In this case, you're going to cycle the gas through refrigerants using Turbin expanders. Turbin expanders in lieu of the type of compressors I was talking about that are jet engines. They're turbine engines.
Again, this idea is to cool it down. Expand the stream using a turbine compressor. And then, when you cool it down, again, you knock out natural gas liquids through the process of condensation.
The idea here, though, is to circulate this gas through the plant several times until essentially, it's been wrung out and you can extract as much NGLs as possible. It's what's called the recovery percentage of the natural gas liquids out of the gas stream.
Here's an overall schematic, and you can see here, you've got some basic-- you start at the wellhead. The oil gas separator that I had in the photo under the natural gas value chain. Condensate separator, that's the heavier liquids that are in-- they are traded in the marketplace similar to oil because they have a lot of crude oil properties.
The dehydration will knock the water out. The next tower takes out the contaminants, the hydrogen sulfide, the CO2. Nitrogen extraction will knock out the nitrogen. A de-methanizer tower literally takes the methane out. You can see when it comes off the top of the de-methanizer tower, it's dry gas. And it goes to the pipeline at the residue part of the processing plant.
And then, the final stage is what's called the fractionator. All these liquids then, are broken down into their individual components-- ethane, propane, butane, isobutane, the pentanes which are C5s, and then, your natural gasolines.
And just a quick diagram here based on EIA information that shows the rise in natural gas liquids production over the last several years.
Here are some pictures of-- in the upper left-- the small processing plant and the lower right, a much larger one.
One more thing that we kind of want to talk about here regarding the processing plants is, that processing plants themselves, use some of the natural gas to run their compressors. But also, when you squeeze the natural gas liquids out, you're squeezing out hydrocarbons. You're squeezing out BTU value, heating value.
And so, the amount of gas that you put in, in terms of natural gas, is not going to be the same as what you take out in, again, in the form of natural gas, not necessarily natural gas liquids. So you can kind of see here, we call this plant volume reduction, the volume of BTUs, or the volume of natural gas that comes out on the residue side of a plant, is not the same amount that goes in on the inlet side of the gas.
Now, these are some of the ways that producers and midstream or processing companies put together their contracts. One of the most popular ones is a POP or Percent of Proceeds contract, this is a type of revenue sharing. And so what happens is, the midstream processing company goes ahead and markets the natural gas, and they find markets for the natural gas liquids. And then, they share in that revenue with the producer.
So the producer gets a percent of the net back pricing of the residual gas and the liquids sales, less whatever the midstream company's charging for their processing fees and fuel. So, for instance, we have contracts that might be a 90/10 or an 85/15. Under 90/10, the producer receives 90% of the net revenue and the midstream company receives 10%.
Now there are other producers who prefer to go ahead and market their own natural gas, and what they want then, is what's known as a keep whole agreement. That means that they want the same amount of BTUs that they gave the midstream company on the residue side. And they're going to market it so there's no revenue sharing. And they're going to pay the midstream company some fees for the actual processing.