Encana shifting focus to natural gas liquids

John Colson
Post Independent Staff
Glenwood Springs, Colorado CO
Components of raw natural gas: Petroleum Communication Foundation/Canadian Centre for Energy Information

PARACHUTE, Colorado – One company drilling for natural gas in this region believes that it will continue to be a profitable venture, despite the low prices gas is bringing on the international market.

Doug Hock, spokesman for Encana Oil and Gas (USA), on Tuesday said the company plans to spend up to $130 million on operations in the Piceance Basin in 2012.

The company also has started work on a new office building in Parachute.

Much of the confidence behind those plans, Hock said, comes from the increasing value of what are known as “natural gas liquids,” or NGLs.

Natural gas liquids are found in the same deposits where oil and gas are located, said Hock.

“They are heavier than methane molecules and come out of the well as liquid, rather than gas. They include ethane, propane, butanes and pentanes,” he said.

Ethane is used to make plastics, while other NGLs, such as butane and propane, have easily recognizable uses in lighters and outdoor barbecue grills. Butane also is used as a fuel in refineries.

“NGLs are a very valuable byproduct,” Hock said. While market prices for natural gas have reached rock bottom, prices for the NGLs have not.

According to the U.S. Energy Information Administration, the price for natural gas stood at $2.54 per million British Thermal Units (MMBtu) on the New York Mercantile Exchange as of the week of Feb. 15.

That is down about $2 per MMBtu from a year ago, and well below the peak price of more than $13 per MMBtu in August 2008.

David Ludlam, director of the Western Slope Colorado Oil and Gas Association, a trade organization, said that the current prices for NGLs are roughly 85 percent of the price of oil.

According to the website, crude oil was going for $106.25 a barrel late Tuesday, which Ludlam said would put a price on NGLs at perhaps $85 or $90 a barrel.

“Under current market conditions, these products draw a higher price than methane (natural gas),” Hock wrote in an email. “For this reason, companies such as Encana are seeking to maximize their production of liquids (as well as petroleum) given the low commodity price of natural gas.”

The NGLs “come out of the well as a liquid, rather than gas (vapor),” Hock said, so the liquids and the vapors need to be separated from each other at plants farther down the pipeline system.

For instance, Hock said, a processing plant in Fort Lupton does this work, known as “fractionating.”

The NGL liquids, Hock said, are present in varying levels at different places around the Piceance Basin, which covers northwest Colorado, southeast Wyoming and northeast Utah.

“Most areas yield some liquids, it’s just to what degree,” Hock explained, adding that it is possible to determine whether a certain area will yield a greater volume of liquids, compared to other areas.

He said geologists and petroleum engineers can study an area to determine how long its buried rock formations were subjected to heat and pressure, or “cooked,” in the Earth’s formative eons.

Formations cooked for shorter periods tend to be “wet,” that is, to contain a higher density of liquids, Hock said. Areas cooked for longer periods are typically drier.

“It’s not an exact science,” he explained.

In the Piceance Basin, he said, the prevalence or absence of NGLs “depends on where you are.” He said the northwestern sections of the basin, such as the oil fields around Rangely, tend to also contain NGLs.

Hock said Encana is, to some degree, switching its focus from natural gas to NGLs, thanks to the prevailing market conditions.

“Our portfolio is primarily in natural gas,” Hock commented. “We still believe strongly in natural gas.

“But due to the price of the commodity, it’s a strategic decision to change the makeup of our portfolio more toward liquids,” he continued. “The challenge is, it’s not something where you can turn a switch overnight.”

He said the company has partnerships with other companies, who provide capital for the operations and share in the profits from those operations, which will help as Encana moves over into NGL production.

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