In the world of natural gas processing, maximizing profit is a constant goal for producers and processors. One strategy that has gained traction in recent years is ethane rejection. By understanding the dynamics of ethane in the market and leveraging its value, companies can make strategic decisions that optimize their bottom line. In this article, we will explore the concept of ethane rejection, its impact on oil and gas prices, and how the industry plans to approach it in the coming years.
The Process of Ethane Rejection
Ethane rejection is a practice employed by natural gas processors in the oil and gas industry. It involves leaving ethane in the natural gas stream and selling it as natural gas instead of extracting it for other purposes. This decision is primarily driven by the current market conditions, as ethane may not be in high demand or its profit margin may be low. When the cost of extracting ethane outweighs the price of standard oil, ethane rejection becomes a viable option. One nuance is that while Midstream processors of Natural Gas employ the process to reject ethane at the processing plant, many producers have an “election” to choose whether they would like to retain the ethane gallon or capture ethane’s heating value in an MMBtu as represented in the Natural Gas stream.
The Importance of Ethane
Although ethane is not always utilized in the production of NGLs, it plays a crucial role in the creation of ethylene, a key component in the production of various everyday products such as plastics, antifreeze, and detergents. Ethane demand has increased over the last 10 years due to large sized ethylene crackers that have been built in the United States. This increased demand has lifted the price of ethane but the price still fluctuates based on demand for plastics (as well as the other products).
The Impact on Natural Gas Prices
The decision to reject or extract ethane has a direct impact on natural gas prices. When ethane is rejected, it remains in the natural gas stream and is sold as natural gas, which can help stabilize or lower gas prices. However, when ethane is extracted and used in the production of ethylene, it can increase the price of NGLs and have a positive effect on oil and gas prices. This delicate balance between ethane rejection and extraction is influenced by market demand and the overall profitability of the industry. When evaluating Ethane Rejection, the processing plant does lose efficiency on Propane recoveries – which weighs in on the decision to reject or recover ethane. Energy Rogue provides daily outlook for Natural Gas, Ethane, Propane, and virtually any energy product in the US (details at the end of the article)
Predictions for Ethane Demand
While the cost of ethane production can be high, industry experts predict a significant increase in demand for ethane-based products in the next few years. This increased demand will drive up ethane prices and potentially lead to a wider spread between ethane/natural gas and a shift towards wetter gas plays. With a greater focus on ethane recovery, the volume of ethane in gas streams will decrease, but the amount of propane recovered will increase, resulting in more efficient and profitable operations. Energy Rogue tracks supply, demand, and exports for ethane, propane, natural gas and virtually any energy product in the US (details at the end of the article)
Ethane Rejection and Profitability
While ethane rejection can be a complex decision for production facilities, it is ultimately driven by market demand and profitability. By carefully assessing market conditions and understanding the potential value of ethane, companies can make informed decisions that align with their financial goals. Ethane rejection may provide short-term cost savings, but as demand for ethane-based products increases, the industry may shift towards greater ethane recovery to capitalize on the rising prices. Energy Rogue values ethane rejection on a DAILY basis (Rogue Edge members have access to this along with so much more – details at the end of the article). We also offer custom processing plant models (updated daily – book a meeting and we’ll discuss)
Ethane Rejection in Different Regions
The impact of ethane rejection varies across different regions. For example, in the Bakken Shale, where transportation costs for NGLs are high, the economics of ethane rejection become more compelling. The cost of recovering and transporting ethane from remote locations can exceed its value at market prices. In contrast, regions with lower transportation costs and higher ethane demand may choose to focus on ethane recovery to take advantage of the potential profits. Energy Rogue tracks every producing basin in the country and has details on nearly every processing plant in the US (details at the end of the article)
Considerations for Processing Strategies
When it comes to processing strategies, several factors come into play. Agreements between producers and processors, pipeline minimum volume commitments, and contractual requirements all influence the decision to reject or recover ethane. By utilizing advanced modeling approaches that consider measurement, quantity, quality, and value factors, processing plants can gain greater clarity on the economics of ethane rejection or recovery, enabling them to make optimal decisions. Energy Rogue is a partner with many natural gas processing companies in the US – we can help you too (join Rogue Edge and book a meeting today – details below)
Ethane rejection is a vital aspect of natural gas processing economics. By understanding the market dynamics and evaluating the value of ethane, companies can make informed decisions that maximize profitability. While ethane rejection may provide short-term cost savings, the increasing demand for ethane-based products could shift the industry towards greater ethane recovery in the future. By leveraging daily insight into Natural Gas and NGLs, Energy Rogue can help you stay ahead in a competitive market (details below).
Remember, the key to success in natural gas processing lies in staying informed, making data-driven decisions, and adapting to changing market conditions. As the industry continues to evolve, companies that embrace innovative strategies and leverage new technologies will be well-positioned to thrive in the dynamic world of natural gas liquids processing.
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