Natural gas liquids (NGLs) are the liquid hydrocarbon components extracted when natural gas is produced. While most NGLs derive from natural gas processing, certain NGLs are also by-products of oil refining. NGLs, which include ethane, propane, butane, isobutane, and natural gasolines such as pentanes are valuable by-products of natural gas processing, and in some situations they are worth as much or more than the methane sold as pipeline natural gas. The various liquids have different uses and are sold into varying markets. Gas wells with a significant amount of NGLs are often called “rich plays.” NGL content is commonly measured in gallons per thousand cubic feet of gas (GPM). Dry gas contains around 1 GPM. Rich gas plays are usually considered to have at least 2.5 GPM, and really rich wells may be as high as 9.0 GPM.
Below is an example of an NGL stream from a gas processing plant. Note that component percentages vary widely and this is only one example:
The NGL delivery chain consists of multiple components:
A refining plant where NGLs are stripped from field condensate
The natural gas processing facility where NGLs are stripped from the natural gas stream
A fractionator that separates out the various NGLs
Pipelines that transport mixed or separated NGLs
Tanker trucks that transport NGLs to local markets
Tanker ships that transport NGLs to international markets
Industrial customers that directly use NGLs
Retail resellers that package and sell NGLs to consumers
NGL markets are much less transparent than other energy markets. Factors that influence NGL markets include:
NGLs are used in various industries, and each has its own demand fundamentals.
Pricing for different NGLs is tied to a variety of factors including weather, oil prices, agricultural demand, industrial demand, refinery needs, and in some cases foreign competition.
Pricing is not very transparent, and there are limited public sources of price data.
Hedging markets for NGLs are thin.
The facilities for processing, transporting, and storing NGLs are not well documented for access by outside observers.
There are various technological flexibilities that result in variable NGL outputs under certain conditions. For instance, some ethane can be left in the natural gas stream, or it can be taken out and sold as a product in its own right. Whether it makes sense to leave it in or take it out depends on factors such as the market price of natural gas, the market price of ethane, the amount of demand for ethane, availability of transport, and pipeline gas quality rules.