Gas-Gathering-Measurement-and-Processing

Gas Gathering, Measurement, and Processing An overview of the upstream, midstream, and downstream segments of our industry eXigent Information Solutions, LLC Exigent-Info.com... The Upst

Gas

Gathering, Measurement, and Processing

An overview of the upstream, midstream, and downstream segments of our industry

eXigent Information Solutions, LLC Exigent-Info.com

Introduction

The oil and gas industry in North America is typically divided into three segments: Upstream, Midstream and Downstream The Upstream segment of the industry involves finding and producing oil and gas; the Midstream segment involves transporting, processing and marketing oil and gas; and the Downstream segment encompasses refineries for liquid products, and the local distribution company (LDC), petrochemical companies or commercial end users, among others, for natural gas This paper will discuss the Midstream segment with respect to natural gas

Midstream infrastructure links supply with demand and connects energy producers with energy consumers In North America, the Midstream segment includes more than 170,000 miles of pipelines, and the world’s most technologically advanced infrastructure The sector can include but is not limited to the following:

 Gas gathering, treating, processing and fractionation

 Natural gas pipelines

 NGL Product pipelines

 Natural gas and product storage

 Natural gas and NGL Marketing

The midstream industry has gone through major structural changes over the years Today, midstream assets are most often operated as profit centers, and held in many different ownership structures, including integrated midstream companies, midsized specialty midstream companies, and small start-up midstream companies, often using the corporate tax structures of Master Limited Partnerships (MLPs) and Limited Liability Companies (LLCs)

The ‘shale boom,’ which has brought the tremendous success of unconventional oil and gas plays, has encouraged hydrocarbon production

in areas that were heretofore considered uneconomic As these shale plays are driving growth in drilling activity across North America, low gas prices are causing producers to focus on rich gas plays (i.e., high in natural gas liquid (NGL) content) For rich gas production to be profitable, NGLs must

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be recovered, processed and transported to market These new rich gas resource plays are located in areas isolated from existing midstream infrastructure and markets, and are driving demand for new midstream assets and infrastructure

Figure 1

U S Shale Plays

Demand for Midstream Infrastructure driven by shale and liquids-rich plays

Source: Energy Information Administration

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History of Midstream

Before 1980 the major oil companies, large independents, interstate pipelines and petrochemical companies owned most midstream assets Major oil companies built midstream facilities to bring their production to market and to supply their refineries and petrochemical plants Heavily regulated interstate pipelines not only owned the interstate pipelines, but also owned gas gathering and processing assets which enabled them to expand their rate bases and secure supplies At the time, energy markets were heavily regulated and midstream assets functioned more as cost centers and less as profit centers This ‘artificial’ market environment created years of supply and demand imbalances along with the associated pricing distortions Finally, in 1978, Congress enacted the Natural Gas Policy Act (NGPA), intended to deregulate well head gas prices The Federal Energy Regulatory Commission (FERC) was charged with implementing the NGPA

By the 1980s, independent midstream companies serving third parties began to enter the market Independent gatherers and processors, intrastate pipelines, and NGL logistics companies were expanding, fueled by price deregulation and greater crude oil and natural gas availability

The poor business conditions in the mid-to-late-1980s for the energy industry gave rise to midstream asset sales and consolidation in the early 1990s Major oil companies and large independents sold their midstream assets as their production declined and they shifted focus to more lucrative offshore and international projects

In 1992, the most significant change in the gas industry happened when the FERC passed Order No 636, and Interstate pipelines became transporters instead of merchants Order No 636 prohibited interstate pipelines from owning any of the gas in their systems, and effectively took interstate pipelines completely out of the merchant role they had historically held This created a dilemma – producers were without their purchasers and distribution companies were without their typical city gate seller Pipelines, who use to schedule their own gas takes, had to develop a business process

to fill their pipelines and maintain the operations of their systems while deliveries of gas into their systems were in the control of shippers, their new customers (usually producers and marketers) Tariffs implementing Order

No 636 went into effect in the fall of 1993 and called for shippers to schedule gas through a nomination process and balance their deliveries with downstream redeliveries; whereas in the past, pipeline purchasers bought an entire well’s production, and the producer had to wait for its revenue check

to determine volume

In the new era, producers have become shippers, and are required to

‘nominate’ transportation quantities before the first day of the month The nomination is due before the first MCF of gas flowed for the month, and thus the producer / shipper do not know how much a particular well will produce during the month After the production month, gas is allocated on a proportionate basis, usually based on nominations Transporters / interstate pipelines deliver the quantities nominated by the producer / shipper at the downstream delivery point The difference between actual, allocated gas volumes delivered to the pipeline, and downstream volumes redelivered at the delivery point becomes a pipeline imbalance, and is either settled by a

‘cash out’ (payment to the pipeline or producer using a predetermined price)

or by volume balancing (the overage / shortage to be made up the next month on the pipeline)

By the mid-1990s, midstream had developed into a profit center in processing, marketing and trading in an unregulated environment, as midstream experienced returns exceeding the regulated cost-based returns of the utilities and interstate pipelines The attractiveness of the midstream sector combined with a growing economy created robust demand for midstream companies and assets in the mid to late 1990s Electric utilities, diversified energy companies, and energy marketers were the primary acquirers of midstream companies and assets Then, in the late 1990s, there was a sudden availability of midstream assets on the market as majors and large diversified energy companies decided to monetize their mature assets with the goal of redeploying proceeds from the sale into higher-return, upstream investments During this time the midstream industry began to significantly expand Most majors spun off midstream assets into new entities, which were able to use the Master Limited Partnership (MLP) investment vehicle MLPs are able to take advantage of a tax structure which enables them to provide investors higher rates of return than those of energy corporations To provide investors with even better returns, MLPs began to focus on growth, making large acquisitions and raising distributions accordingly

Modern Era

Gas can theoretically be sold by a producer at any point between the wellhead and the burner tip, but activities beyond the production area are still part of a separate business, the midstream marketing business Participants in the midstream marketing business aggregate quantities and provide many other services which were historically provided by interstate pipelines when they were merchants

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Today, the midstream industry includes major oil companies, large independent midstream companies, energy merchants, petrochemical companies, and smaller entrepreneurial midstream companies Some have upstream assets, some are focused strictly on processing, others are more integrated, and many are funded by the MLP investment vehicle The sector continues to aggressively change, and many small companies are rapidly building midstream assets, holding them for a short period of time, and selling the assets to larger midstream players for significant returns Other companies and outside investors are taking advantage of this situation by acquiring these midstream assets, while a few industry companies are deciding their midstream holdings are not core to their long-term futures and spinning them off It is a very exciting time to be in the midstream business!

Overview of Industry:

Transporting natural gas from the wellhead to the end user is a step process and involves infrastructure from the wellhead to interstate pipelines to the local distribution company (LDC)

multi-Gas And Oil Gathering, multi-Gas Treating, And multi-Gas Processing

Gas Gathering

Natural gas gathering and processing infrastructure receives raw gas from producers at the wellhead, processes it to meet the specifications of pipeline quality gas, and delivers it into the pipeline grid The natural gas gathering system begins in the field, with the production of raw natural gas, which is often treated in the field (separation and dehydration), compressed and sent to a processing plant Gas is usually gathered by several small diameter pipelines which move the gas to larger gathering lines, and in turn

to a processing plant Gathering lines are generally less than eight inches in diameter, usually located in rural producing areas and operate under low pressure Most states do not regulate these lines The raw gas stream consists mostly of methane, but also contains other hydrocarbons such as ethane, propane and butane, referred to collectively as Natural Gas Liquids (NGLs) It can also contain carbon dioxide, nitrogen, helium, hydrogen sulphide and water Natural gas is commonly dehydrated near the point of production or during the gas separation or sweetening process at a gas processing facility The gas then travels from the production area to a processing plant to remove NGLs and non-hydrocarbon constituents, and is raised to the level of pipeline quality gas Once the gas has been processed

in a gas plant, it is compressed and transported in much larger pipelines known as transmission lines, which can be up to 48 inches or more in

diameter These pipelines operate at higher pressures and when they cross state lines, they are regulated by the Federal Energy Regulatory Commission (FERC) The interstate pipelines move the residue gas to market hubs, local distribution companies (LDCs), commercial users, chemical plants, or to underground storage reservoirs

Gas Measurement

The gas must be measured at a myriad of points along the midstream processing chain The most common meter used to measure gas is the orifice meter Orifice meters measure the pressure drop across the orifice plate, called the differential pressure This variable, along with other variables of the flowing gas, are used to determine of volume of gas flow The components of an orifice meter are a meter tube (meter run), orifice plate, orifice holder, pressure taps, and a recording device (Electronic Flow Computer (EFM) or a chart recorder)

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Figure 2 Orifice Meter with an Electronic Flow Computer

Courtesy of COPAS Gas Accounting Manual

An orifice meter is called an ‘Inferential Meter,’ meaning that characteristics of the gas flow are measured in order to ‘Infer’ the volume of flow Thus natural gas measurement is perpetually imperfect, since there is always some degree of uncertainty associated with it Although volume calculations are based on science, we can never know the exact quantity of natural gas flowing through a meter

Processing

After the raw gas has been produced and gathered, it must be processed

to remove liquid hydrocarbons and impurities Gas processing involves two main operations: 1) extraction of NGLs from the gas stream; and 2) fractionation of NGLs into their separate ‘Purity’ forms Additional processing may be required to treat and condition the natural gas and the NGLs to remove CO2, H2S, nitrogen, etc Once the NGLs have been removed from the gas stream, they become feedstock or end products in the distribution chain, and include ethane (C2), propane (C3), butane (C4) and pentanes (C5) For the most part, NGLs are generally used by refineries, petrochemical plants, the agriculture industry, and NGL distributors

Processing a raw gas stream for delivery to interstate transmission pipelines can involve a range of technologies, depending on the chemical content of the gas stream, location of the hydrocarbons and other factors In some cases, dehydration is sufficient to move the gas down the pipeline, while in other cases, the gas must undergo significant processing The most common treatment of natural gas is removal of excess water vapor, which is necessary to prevent formation of hydrates and freezing in interstate pipeline transmission systems The gas processing industry uses a variety of processes to treat natural gas and extract natural gas liquids from the gas stream The two most important extraction processes are the absorption and cryogenic expander processes Together, these processes account for an estimated 90% of natural gas processing If the raw gas stream includes hydrogen sulfide or carbon dioxide, the gas plant must treat both the natural gas and the NGLs to remove these contaminants This process is called

“sweetening” the gas There are many methods that can be used, most of which rely on chemical reactions, physical solution, or adsorption The most common chemical processes are based on contact with amine solutions These solutions react with the acid gas compounds to form other compounds which can be safely removed Adsorption processes involve the removal of unwanted components by passing the gas or liquid through a bed

of solid material that has been designed or treated to selectively extract carbon dioxide, hydrogen sulfide, or other contaminants The sour gas

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effluent from a sweetening unit must be further treated, either for disposal

or for recovery of sulfur

Once the gas has been sweetened, most gas processing facilities are designed to recover NGLs and then deliver pipeline quality residue gas to interstate pipelines at the tailgate of the plant This involves three main processes: 1) removal of impurities; 2) removal of water; and 3) separation

of NGLs from the gas stream

The typical gas plant process includes dehydration, mechanical refrigeration, turbo-cryogenic expansion, recompression and distillation columns designed to recover and remove all NGLs from the raw gas stream Most plants will process the gas such that all NGL products from propane and heavier (C3+) will be separated into a pressurized NGL product stream (typically known as Y Grade) which can be transported via pipeline, truck

or rail to fractionation facilities By separating the NGLs from the raw gas stream, the plant operator is able to deliver Y Grade to another facility for further processing, and deliver pipeline quality gas to the interstate pipelines

at the tailgate of the plant Usually, the process uses mechanical refrigeration to lower the temperature of the gas to approximately 30 degrees Fahrenheit, then uses a turbo-cryogenic process to expand the gas from high pressure to low pressure This cools the gas to about minus 125 degrees Fahrenheit, thus causing all the propane and heavier components to

‘fall’ out of the gas stream as NGLs At the end of the process, the gas is recompressed into the interstate pipeline for transport as pipeline quality gas Depending on gas composition, the gas processing plant may also include additional treating to remove carbon dioxide, helium, or nitrogen

Figure 3 Natural Gas Processing Schematic 1

Source: Coalbed Methane: Recovery & Utilization in North Western San Juan, Colorado

1

 http://www.ems.psu.edu/~elsworth/courses/egee580/2010/Final%20Reports/CBM_Report.pdf

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Fractionation

A Fractionation facility will take the ‘Y Grade’ as feedstock, and

‘fractionate’ it into separate products NGLs are fractionated by boiling the lighter products from the heavier products, using a sequence of towers in which temperatures and pressures are controlled such that that the boiling point will be reached by only one NGL in each tower Fractionating towers are usually named for the overhead or product which flows out the top of the column For example, the product flowing out of the top of a deethanizer column is ethane The deethanizer is the first step in the fractionating process, where only the ethane is allowed to boil and escape through the top

of the tower and the propane and heavier components fall to the bottom of the tower and are sent to the next tower, the debutanizer The next step is to process propane, which has the next-highest boiling point, and is heated and boiled out the top of the column The next step in the fractionating sequence is to separate the butane, then the pentane and heavier components Once the propane and heavier components come out the top of the tower as a gas, they are cooled so that they condense back to liquid form and are piped to inventory tanks before being transported to market The NGLs involved in this process are:

 Ethane – a hydrocarbon with a molecular structure of two carbon atoms (C2), and is produced primarily from natural gas processing plants It is used in the petrochemical industry to make polyethylene, a building block for many plastics The economics of ethane extraction are driven by its value as a petrochemical feedstock versus the value of its heating content, if left in the gas stream The process of leaving the ethane in the gas stream is called ‘ethane rejection.’

 Propane – a hydrocarbon with a molecular structure of three carbon atoms (C3) The primary end-use applications for propane are as a home heating fuel and as a vehicle fuel The other main use for propane is petrochemical feedstock in the manufacture of polyethylene and other chemicals Since propane supplies from gas plants are extracted in conjunction with ethane, it is often transported as an ethane/propane mix

 Butane – a hydrocarbon with a molecular structure of four carbon atoms (C4) Its principal uses are to provide needed volatility for motor gasoline Another main use for butane is

to isomerize it to produce iso-butane, which is used by refineries for the production of alkylate, a vital ingredient of