NGL markets in North America: 1999--2005 competitive threats and opportunities

Gas processing contracts are structured in two basic ways. Gas plants are typically operated on a strict margin basis, on a percentage-of-proceeds basis, or on a keep-whole basis. Based on straight margins, percentage-of-proceeds or keep-whole contracts, gas processing profitability was weaker in 1998, than at any time during the past 10 years. No matter how gas processing profitability was measured, 1998 was the worst year in the history of gas processing since 1985. The economic disaster of 1998 prompted many gas plant operators to reevaluate their long-term participation in the industry. This paper reviews the root causes that resulted in the gas processing industry's economic meltdown in 1998. Trends in crude oil prices and natural gas prices determine the fundamental profitability for gas processing. Trends in ethylene production and ethylene industry profit margins determine the levels of demand for ethane and propane. This paper also highlights the prospects for recovery in profit margins, improvement in per gallon values and the potential for growth in total demand NGL and production