Surge in gulf gas will impact Louisiana facilities

Rebecca B. Roberts
Texaco Inc.
White Plains, N.Y.

Revitalization of U.S. Gulf of Mexico natural gas production will have major effects on natural gas and NGL processing and movements in Louisiana and in wider U.S. markets.

While onshore Louisiana production has stabilized at approximately 2.5 bcfd after a steady decline, the Gulf of Mexico is in store for significant increases.

Production in the gulf fell from 13.8 bcfd in 1990 to 12.9 bcfd in 1995. 1996 production increased to 13.9 bcfd as withdrawals jumped from 87.9% to 93.4% of deliverability as a result of unusually cold winter (Fig. 1) [20,353 bytes].

Deliverability increases from deliverability are already occurring this year as deepwater developments come online. Increases for the gulf are forecast in a range of 3-9 bcfd by 2005. Construction of new gathering systems and modification of existing transmission pipelines are underway to accommodate the anticipated production increases.

NGL production increases could range from 140,000 b/d to more than 600,000 b/d, depending on the gas rate and liquids content of the new gas. Since more than 50% of the gas from deepwater development is expected to be associated with oil production, recoverable liquids could average 3 gal/Mcf compared to the average of 1.0-1.5 gal/Mcf commonly found in existing shelf production.

Changes in infrastructure in South Louisiana will be required to process and fractionate the liquids and to transport the products to market.

Production scenarios

Conservative forecasting models predict offshore Gulf of Mexico deliverability increases of 3 bcfd over the next 8 years with a flat profile maintained from that point. Under this scenario, NGL increases could be 140,000-214,000 b/d (based on 2 and 3 gal/Mcf recoverable liquids) by 2005 over the estimated 400,000 b/d currently produced from offshore gas (Fig. 2) [25,598 bytes].

The conservative scenario represents a high probability baseline for production expectations.

More aggressive forecasting models indicate that if technological developments and innovative cost control were to maintain their present pace, production increases could exceed 9 bcfd by 2005. NGL production in this robust scenario could exceed 600,000 b/d.

The probability of this robust scenario may be diminished by such limiting factors as pricing pressure, facilities availability, and application of technology. Before this scenario is dismissed entirely, however, consider that when the Gulf of Mexico began its first boom in the late 1960s, natural-gas withdrawals rose from 1.78 bcfd in 1965 to 9.7 bcfd in 10 years (U.S. Geological Survey data).

Scenario evaluation

Some of the current signposts for evaluation would favor the more robust outlook. Producers are clamoring for the opportunity to search the gulf for hydrocarbon reserves.

Earlier this year, the Central Gulf Lease Sale (OGJ, Mar. 17, 1997, p. 34) saw bids on 1,032 tracts, an all time high. As recently as 1992, only 151 tracts were bid on.

The average bid in 1992 was $372,000/ tract, while the 1997 bids averaged $799,000. Of the 1,790 bids placed this year, 1,007 were in water depths greater than 1,300 ft.

Utilization of offshore rigs in the Gulf of Mexico is approaching 100% compared to 63% only 2 years ago. U.S. drilling success rates have improved significantly with dry-hole rates on exploration wells falling from 80% in 1988 to 54% in 1996.

While water depths of 1,300 ft were intimidating to producers just a few years ago, wells have now been drilled in deeper than 6,000 ft of water. More than 180 deepwater wells have now been drilled in the Gulf of Mexico with discoveries currently labeled as commercial exceeding 50.

Subsea completions and innovative production facilities such as floating production systems and tension leg platforms are making deepwater production a reality. Producers and service companies are pooling their research dollars in DeepStar, a research consortium of producers and vendors, which strives for cost-effective technical solutions to deepwater challenges (OGJ, Sept. 2, 1996, p. 23).

These improvements, combined with the significant production potential of many of the discoveries, make deepwater Gulf of Mexico commercially viable.

The first wave of this production is already being felt this year with deliveries from Ram Powell (Shell), Mars (Shell), Neptune (Oryx/CNG), Troika (BP/Marathon/Shell), and Mensa (Shell). Production increases from these projects alone could approach 1 bcfd.

The primary factor limiting the robust scenario is tight supply of drilling rigs, fabrication facilities, and skilled workers.

The queue has formed for pipe rolling and coating, and the backlog for facilities construction is worsening. Qualified workers are no longer readily available and are often offered incentives by prospective employers to switch jobs. While these limitations do not affect the deliverability potential of the deepwater Gulf of Mexico, they affect the timing of the new production.

Onshore capacities

Even under the conservative scenario, onshore gas and NGL facilities in Louisiana will likely see capacity constraints. The robust scenario could create significant challenges for infrastructure.

Most of Louisiana's processing and fractionation capacity was built in the 1960s and 1970s. Lean-oil plants along the coastline were designed to handle volumes of 1 bcfd and higher.

In the 1980s, many of these plants were taken out of service and replaced with smaller cryogenic plants. In the early 1990s, processors were searching for additional operational efficiencies as production rates and the liquids content of the gas fell.

An unofficial survey of processing capacity conducted by the author in 1996 (of plants with capacities greater than 200 MMcfd) showed more than 3.5 bcfd of available capacity in Louisiana.

At first glance, that capacity appears to be adequate to handle the production increases under the conservative scenario through 2005. Less than 1 bcfd of that available capacity, however, resides in southeast Louisiana where more than 80% of the new production is expected to land.

Mid-stream companies are already positioning to accommodate these future volumes.

Expansions at Venice Energy Services Co.'s Venice, La., fractionator (a partnership of Chevron U.S.A., NGC Corp., and Koch Energy Services) will increase processing capacity to more than 1 bcfd from its current capacity of 425 MMcfd.

The Discovery Project, a partnership between Texaco Natural Gas, division of Texaco Inc., and Mapco Inc., Tulsa, is constructing a grassroots cryogenic plant at Larose, La., to process more than 600 MMcfd of new production.

Other projects are likely to develop as the deepwater growth potential becomes more evident.

The expansion mode continues for fractionation, the capacity of which faces a more immediate constraint with less than 60,000 b/d available in central and southeast Louisiana.

Proposed expansions could provide as much as 152,000 b/d of new capacity in central and southeast Louisiana. Expansions include 42,000 b/d at Discovery's Paradis, La., fractionator, 80-85,000 b/d at the Promix Napoleonville, La., fractionator, 15,000 b/d at the Shell Midstream Enterprises Inc. Norco, La., facility, and 15,000 b/d at Venice Energy Service's fractionator.

Distribution

Facilities concerns extend to products distribution where an increasing supply of NGL products will change distribution patterns significantly.

For example, ethane, which represents 40-50% of recoverable NGL, has been aimed at industry in the Mississippi River industrial corridor between Baton Rouge and New Orleans. In 1995, ethane utilization in eastern Louisiana was approximately 110,000 b/d.

Projected-demand studies indicate that ethane consumption will grow by 40,000 b/d in this area by 2005. Depending on the scenario selected, ethane production could increase by 60,000-300,000 b/d. Excess supply is likely to cause a reversal in the current movement of ethane from west to east, sending ethane product back to Mont Belvieu, Tex.

Propane, which is 25-30% of the product stream, faces a similar change. Propane is utilized by petrochemical "crackers" located in the industrial corridor or by wholesalers in the southeastern U.S. which access the propane through the Dixie Pipeline.

Production could increase by 35,000-180,000 b/d, while demand increases in eastern Louisiana are forecast at 30,000 b/d over the current 60,000 b/d. As with ethane, new propane production in the state will back out supplies currently coming from Mont Belvieu and western Louisiana.

Demand increases in the industrial corridor for the heavier components (n-butane, isobutane, and natural gasoline) are not in sight. Under either scenario, the increased production of heavier components will likely move to Mont Belvieu.

The entire industry is looking for avenues for liquid product deliveries to Mont Belvieu from Louisiana.

Dow has announced its intention to move products westward from Napo leonville. Texaco Natural Gas recently announced its Texaco Expanded NGL Distribution System project (Tends; OGJ, Apr. 28, 1997, p. 38), a 500-mile, 230,000-b/d network of bi-directional NGL pipelines across southern Louisiana. Others are expected to follow suit as the patterns of product distribution change.

Gas distribution from the Gulf Coast could also be affected.

As Canada-to-Chicago pipeline projects are completed, Gulf Coast gas will be channeled primarily to intrastate markets and the Northeast U.S. Bottlenecks are already experienced during peak days on some of the long-haul pipelines out of Louisiana.

The market pressure provided by the increase of supply will continue to affect pricing differentials from pipeline to pipeline. Versatility to move gas from pipeline to pipeline in response to market conditions will be very important to producers and marketers.

Service

Innovative services will be the key to thriving in this changing landscape. The more options available, the better positioned the producer, marketer, and service provider will be.

The Discovery Project is a good example of service options which will be provided to accommodate changes onshore. Discovery's new cryogenic plant at Larose, La., will offer more than 90% ethane recovery to almost 100% ethane rejection and will be adjusted based on the ethane demand in the market.

Products from Discovery's fractionator will access the Tends system, whose bi-directional capabilities will permit movement of products into the industrial corridor markets or west toward Mont Belvieu. One of the outlets for residue gas behind the Larose plant is Texaco's Bridgeline Gas Distribution LLC, which delivers to Sorrento storage, 14 interstate and intrastate pipelines, and most of the major south Louisiana intrastate end-users.

Acknowledgment

The author would like to acknowledge contributions from the following: John S. Hull, Texaco Natural Gas-North America, Houston; Jim W. Reynolds, Texaco Natural Gas Liquids, Tulsa; and Landy W. Roberson, Discovery Producer Services LLC, Houston.

The Author