The gas midstream industry faces two interesting challenges – the increasing abundance of economic gas production, even at lower forecasted sales prices, and the continued pressure on crude oil prices. Our recently completed long-term forecast of gas plant volumes and potential NGL supply highlights the risk factors in making investment decisions about gathering, processing plant, and NGL assets.
The most important risk is volume – as the world retreats to a risk-averse stance in negotiating midstream fees, the most important metric in assessing future value for midstream assets is the prospect of future volume growth. When looking at assets designed to handle gas and NGLs, not all gas molecules look alike. The projected NGL content of the gas determines how much of it must be moved through a gas plant to create the ‘dry’, or residue, gas required by the market. NGL content also determines how much NGL is likely to be produced in a region, and how much ethane will ultimately be recovered. This, in turn, drives the amount of throughput that can be expected for NGL pipelines, fractionators, and, ultimately, export terminals as these barrels seek a market.
The primary metric to assess likely volume growth is knowing the type of gas expected to be produced. So-called “associated” gas, which is gas that is produced as part of an oil play, has high NGL content per unit of production. It means that more of it has to be processed to deliver the amount of ‘dry’ gas required by the end market. This is due to the ‘shrink’ in gas volume that results from removing liquids for sale as NGLs.
Much of the future demand growth for US gas is expected to be concentrated in the US Southeastern and Gulf Coast regions, where it will feed chemical plants, power generators, LNG export terminals, and the Mexican market. Associated gas produced in this region has a cost advantage in being closer to the end user as well as having higher NGL content, which helps lower the producer’s breakeven cost.
A recovery in crude prices would be expected to support ongoing growth in associated gas production. In turn, this would increase the need for gas processing capacity and NGL handling facilities in these areas and support throughput growth for current capacity. However, a conservative crude case that reduces the expected average price for WTI longer term introduces risks to that investment thesis. With lower crude prices providing less support for the development of oil plays, the incremental supply needed by the gas market would tend to come from plays with lower NGL content. Less total gas would require processing for NGL extraction to produce the same volume of dry gas for sale.
The following figures illustrate the difference in the impact that oil prices could have on the amount of associated gas production available for processing.
In the higher crude price case, the amount of associated gas in the processing stream is forecast to be as high as 48% by the time overall associated gas production peaks in 2026.
Ultimately, as with other types of real estate, the message for prospective midstream investors is “location, location, location”. And, as always, an opinion on where future growth is will be key to a good deal. More than ever – even when the focus is on gas – crude price matters.
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It seems to have been a topic that has been discussed for years, but a decision could finally be made. The Philippines has short-listed three different groups who are in the running to build the country’s first LNG import terminal, whittling them down from an initial 18 that submitted project proposals. The final three consist of the Philippines National Oil Company (PNOC), a joint venture between Tokyo Gas and domestic firm First Gen Corp and China’s CNOOC. The Philippines hopes to choose the final group by the end of November – an optimistic decision that belies that many, many complications that have come before. And those still to come.
First of all, the make-up of only one of the groups has been finalised. A local partner is a requirement for this project; CNOOC has yet to officially tie-up, although it has been talking to Manila-based Phoenix Petroleum, while state oil firm PNOC does not have a (deep-pocketed) partner yet. Firms including Chevron, Dubai’s Lloyds Energy Group and Japan’s JERA have reportedly contacted PNOC to express their interest, but a month before the Philippines wants to make a decision, its own home-grown hero hasn’t yet got its ducks lined up in a row.
And time is of essence. The once giant Malampaya gas field is running out of resources. Supplying piped natural gas to three power plants that feeds some 45% of Luzon’s electricity requirements, the Shell-operated field is expected to be completely depleted by 2024. With the country aiming to move away from burning coal or (imported) gasoil for power, gas is needed to replace gas. Even though the Philippines is pushing for a bilateral agreement with China to pave to way for joint exploration activities in disputed areas of the South China Sea – to the consternation of its citizens – any discovery in the Palawan basin or Scarborough Shoal will be years from commercialisation.
So LNG is the answer. And LNG has been the answer since 2008, when the need for an LNG import terminal was first identified. And it is not like no projects have been proposed – Australia’s Energy World Corp (EWC) has been wanting to build an LNG receiving terminal and power station in the Quezon province near Manila for years, but the project has been described as ‘trapped in a bureaucratic quagmire’ due to hurdles from various government agencies, or stymied by groups with competing interests.
PNOC itself has been wanting to build its own terminal in Batangas, within range of existing gas and power transmission facilities currently drawing Malampaya gas. But, just like Pertamina in Indonesia, it is cash-strapped and unable to drive the project on its own, hence the requirement for a partner/s. First Gen Corp and Phoenix Petroleum are both private players, with First Gen already operating four of the country’s five gas-fired plants while Phoenix Petroleum has close ties with CNOOC Gas.
Many announcements have been made and gone, but with this shortlist of three groups, it does finally look like the Philippines will be able to get its LNG ambitions of the ground. And it is thinking even bigger; wanting the terminal to become a LNG trading hub for the region – capitalising on the existing habit of ship-to-ship transfers of LNG cargoes into smaller parcels in the Philippine waters for delivery into southern China – challenging existing ambitions in Japan, South Korea and Singapore. But perhaps that is getting a bit ahead of themselves. Getting a project – any LNG project – off the ground is the first priority. And the rest can come after that.
Other Proposed LNG Projects In The Philippines:
Headline crude prices for the week beginning 5 November 2018 – Brent: US$72/b; WTI: US$62/b
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It is a well-known fact that the oil and gas industry has a lot to offer in terms of opportunities - paycheck, lifestyle, and work-life balance. However, like everything else in life, it has a flip side as well. If you are planning to make a career in oil and gas industry, it is important to know the cons as well. Here is a list of risks associated with working in oil and gas industry that you must know to make an informed decision.
Highly competitive: survival of the fittest
Oil and gas industry is highly competitive and dynamic in nature. The job requires high level of expertise and productivity. With digitization and automation of the industry, the work functions are changing rapidly. The employees who cannot cope up and upskill with changing time and need will be automatically pushed out of the system. The foremost challenge in oil and gas industry is to stay relevant and keep upskilling.
Long work hours
Some job functions in oil industry like offshore rig workers have to work in 12-hours shift, seven days a week and for seven to 28 days in one stretch. Sometimes, overtime is also expected due to emergency or to manage the project deadlines. However, the oil companies do give equal amount of resting period to the rig workers to compensate for the long working hours. Even then, the continuous long hours is strenuous for the workforce.
The accident-prone work environment
Although rigorous safety trainings are provided to the workforce along with numerous safety measures and laws in place; accidents do occur. Sometimes, these accidents can be life-threatening. Here is quick overview of the possible accidents that you might encounter:
Risk of confined space and fall- The line workers in oil and gas industry sometimes work in confined spaces like mud pits, reserve pits, storage tanks, sand storage, and other excavated areas, where they are exposed to potential risk of ignition of inflammable vapors, exposure to harmful chemicals, and asphyxiation. Additionally, these kinds of workplaces involve risk of falls, slips and trips too which can cause severe injuries and can even turn fatal. Though the companies are extremely careful and take all safety precautions, but the risk cannot be ruled out.
Additionally, frequent exposure to chemicals used in refineries and drilling operations can impact long-term health. To offset these dangers, oil and gas companies provide comprehensive training to employees to ensure safety protocols and site-specific features.
Working in remote location
The oil and gas professionals have to work on remote location for exploration, offshore duties, pumping stations, gas plants and more. The workers in remote location often feel isolated and they are on their own to cope up with numerous work-related accidents and health hazards.
Working in oil and gas industry is extremely rewarding in terms of career growth, travelling opportunities and compensation. However, the above points must also be considered before stepping into this industry. It is important to mention here that majority of oil and gas companies are aware of the risks associated and thus have sound safety measures in place to avoid any contingency. Moreover, the government and regulatory bodies also impose strict regulations for safety and security of the workforce. Therefore, in many cases, the risk associated is considerably reduced. So, before you accept any offer from any oil and gas companies, you must carefully verify the safety measures and policies of the company. Once, you are assured, your career in oil and gas will be highly rewarding.
If you are looking for relevant opportunities, check out NrgEdge.com to kickstart your career in oil and gas industry.