[Graeme]

Is The Inclusion Of Natural Gas Liquids In The Definition Of Oil Plausible?

A new debate has emerged in recent days around the new definition of oil. In a commentary published on July 16, 2012 on Peak Oil Review, Kurt Cobb argues that the idea that global oil production has been spinning around 88 and 89 million barrels per day (mbpd) this year is wrong. This is because these figures include, following the new definition of oil, not only crude oil but also natural gas plant liquids (NGPL) (mainly, ethane, propane, butane and pentane) and biofuels.

According to him, excluding these products from the analysis, global oil production would be reduced to only about 75 mbpd. Moreover, since 2005 the volume of crude oil would have stalled between 71 and 75 mbpd, while liquids extracted from natural gas would have grown "rather rapidly" and biofuels to a lesser extent.


This finding, however, does not explain why oil prices went up so much in the last 7 years or so, leaving Cobb's counter argument to the abundance of world oil hypothesis intact not to include NGPL and biofuels in the definition of oil. I describe below the various points of view put forward by Cobb.

seekingalpha

[Pops]

Yeah, I read that this morning and couldn't understand "plausible", which to me has the connotation of apparent reason vs provable reason, why not just come out and say misleading?

Bio-fuels manufactured to replace petro-fuels are obviously a rational addition, as are any of the NGPL that previously were derived from oil for other uses before wet-gas became profitable.

[lper100km]

Just another example of the kind of doublespeak and obfuscation we are regularly fed to maintain the myth of BAU. There’s nothing plausible about reclassifying LNG as ‘oil’.

[Pops]

Yeah you got me, that was a premature submitilation, went for Full Editor, hit submit instead and couldn't wait around for the stinkin slow site to edit.

Enough of the groveling, lol - here it is again:

My point was mainly that that it is easy to say the new number is plausible but that doesn't mean it is usable or reasonable any more that the headline unemployment or inflation or money supply number they've redone or got rid of lately, none of which appear to have been "adjusted" to appear less optimistic

Bio-fuels manufactured to replace petro-fuels are plausibly a rational addition, as are any of the NGPL that replace those previously derived from oil simply because even the real live oil is far from equal - Syncrude or Bakken Fluffertation Light vs Clampetts Muzzleloader Sweet for example.

There are a million ways it could be measured but it's no surprise that the merely plausible and of course largest number is the one used.

[kublikhan]

NGL's are chemical feedstock, crude oil is turned into gasoline, diesel, bunker oil, transport fuels. How does IEA/EIA consider them to crude replacements?

If the petrochemical industry now has a new feedstock(NGLs), then they can reduce their consumption of crude oil as a feedstock. For example, using more ethane(from NGLs) frees up more naptha(from crude) to be turned into gasoline.

A Gas-Powered Renaissance

Plastics play an unprecedented role in almost every part of our daily lives. It’s impossible to go through a single day without coming into contact with some kind of plastic: water bottles, cell phones, automobile parts, keyboards for computers, chairs, tables, sunglasses, and just about everything else.

The petrochemical industry makes all of those plastics from various hydrocarbon “feedstock.” You may not realize it, but the shale gas revolution in North America is playing an important role in creating a true renaissance in petrochemical manufacturing in the United States.

The reason is that in most parts of the world, the feedstock for petrochemicals comes from crude oil-price related products such as naphtha. Here in North America, they can largely use natural gas liquids (NGLs) instead. These NGLs (mostly ethane and propane) are produced alongside natural gas and are less expensive than their crude-oil based counterparts. Ethane and propane can be converted in compounds called olefins – ethylene and propylene – which is what petrochemical companies use to make plastics and other petrochemicals. The availability of abundant, relatively inexpensive feedstock right here in North America is creating a boom in petrochemical manufacturing. That means more jobs and even an increase in exports, helping the U.S. trade balance.

A Gas-Powered Renaissance

Ethane, Gas & NGLs/1

*Highest conversion rate to ethylene

*Considered NGL (Mideast Gulf) or NGL/gas

*Feedstock value, not only BTU value

*Frees naphtha for gasoline use

Petrochemical Feasibility & Competing Feedstocks

FEEDSTOCK OPTIONS FOR THE PETROCHEMICAL INDUSTRY

A variety of feedstocks are used for petrochemicals production. Petrochemical feedstocks are generally produced from the refining of crude oil or the processing of natural gas. The figure below illustrates the conventional sources of petrochemical feedstocks. Recently, alternative process routes utilizing coal, biological hydrocarbons and unconventional natural gas, particularly shale gas, have gained more attention as potential feedstock sources. Other emerging sources include unconventional natural gas, predominantly from shale gas, and bio-based commodity feedstocks.

Due to growing supplies of unconventional sources, United States natural gas prices have fallen below crude oil equivalent which has resulted in a strong incentive to extract ethane from “cheap” natural gas. A few years ago, minimal ethylene capacity additions were expected in North America, particularly in the United States where no new capacity developments were projected. However, with the anticipated amount of NGLs-rich shale gas, a number of chemical companies have announced their desires to take advantage of the new feedstock supply. Many have already switched their steam crackers to crack lighter feedstocks while some are proposing building new ethane-based steam crackers to handle the projected supply.

The ability to use alternative feedstocks is one key factor to achieve the lowest cost of chemicals production especially where feedstock prices have become highly volatile. The petrochemical industry continues to be highly cyclical and commoditized, therefore finding ways to optimize production and minimize cost is important for success. The ability to use alternate feedstocks is one of the key elements in achieving the lowest cost of production, especially in an environment where feedstock prices have become highly volatile.

Global Petrochemical Feedstocks Report

Why seek new feedstocks?
*Alternative petrochemical feedstocks due to shortages or unavailability of naphtha or natural gas
*Alternative crude oil sources due to declining conventional crude production and/or need for regional energy independence
*Profit opportunities from lower-cost alternative feedstocks: Remote Gas, Coal, Tar Sands, Shale Oil and Heavy Crude
*Utilization of renewable feedstocks that replace fossil fuels for power and transportation.

More Feedstock Options

[kublikhan]

How can you say ethane replaces naphtha? It is the opposite. Naphtha may be used as a chemical feedstock to replace ethane, but ethane does not replace naphtha for it primary value, as a component of gasoline.

No, I was not trying to say you can use ethane to make gasoline. what I meant was ethane is displacing naphtha as a chemical feedstock. With less naphtha being used as a chemical feedstock, there is more naphtha available for making gasoline.

[kublikhan]

No, either ethane or naphtha can be used as a feedstock for the petrochemical industry. They are interchangeable. You might have to retool or rebuild the plant to switch to a different feedstock, but the end product produced is the same. Natural gas rich regions, such as North America and the Middle East, tend to use ethane. Natural Gas poor regions, such as Europe, tend to use naphtha. Ethane is harder to ship across the ocean. So importers primarily use naphtha. However with the recent abundance of NGLs in North America, ethane has gotten much cheaper than it has been historically. Because of this, the petrochemical industry in North America has a clear price advantage. Russia looks set to build an ethane->ethylene plant as well so they won't have to import ethylene anymore. Infact the naphtha crackers in Europe may eventually shut down because of the high cost of naphtha. Here's another article discussing the situation if you are interested. I don't agree with their predictions on where the price of oil is heading, but it gives some background on the ethane/naphtha situation in various regions.

With petrochemical production reliant on an expensive feedstock, Europe's industry fights to be competitive

Because its production facilities are mainly based on naphtha feedstocks, it is predicted that Western Europe's petrochemical industry will struggle to compete with its counterpart in North America, which is bolstered by a significant ethane advantage.

North America has always had greater access to natural gas reserves than Europe, providing its industry with cost-competitive ethane. Natural gas in the US has become increasingly available, and according to Joe Pilaro, president of US-based petrochemical consultancy BRAE Partners, "we are just beginning to access the natural gas in shale," which is primarily wet gas - also called gas liquids - and suitable for ethane extraction.

The US will remain long on natural gas "for a very long time - 100 years. I don't see any change in the dynamics" between the US and Europe, says Pilaro. "Europe is always going to be at a disadvantage [and] has had a competitive disadvantage since forever. That is why the US was, at one point, exporting roughly 10% of ethylene derivatives to Europe."

From 1986 to 2003, there was no cost advantage between ethane and naphtha - and while Saudi ethane may have been cheaper, the logistics of transportation only raised its cost. "It's only in the past five or six years that we have seen potentially a major differential open up between ethane prices and naphtha," says Paul Hodges, chairman of UK-based consultancy International eChem.

CLEAR DIVERGENCE
But there has been a "very clear divergence" in ethane and naphtha prices in the past few years, with naphtha prices at a 117.8 cent/gal premium to ethane versus a 20-year average of 42.3 cents/gal, notes Hassan Ahmed, cofounder of US-based financial research firm Alembic Global Advisors.

Availability is a primary consideration for feedstock selection on a global basis, Ahmed points out. "In the Middle East, ethane crackers are dominant because suppliers have made ethane readily available from abundant natural gas supplies." However, he notes, naphtha is more economical to ship than other feedstock options, such as ethane and propane, "so naphtha is the most logical feedstock for importing regions." Meanwhile, an ethane cracker "will probably not be built in Europe," says Pilaro.

The divergence in pricing between naphtha and ethane is "not surprising as the crude oil market is a global one while natural gas still remains a local market with pricing dictated by regional supply/demand fundamentals," says Ahmed.

It will take a long time to happen, but Pilaro hypothesizes that eventually "the European producers with naphtha plants are going to go out of the derivatives business" because of cost. "The highest cost plant goes first," he says. The European petrochemical industry needs to be more competitive, agrees Hodges: "You need to weed out the crackers that aren't as efficient anymore."

With a developing surplus of shale gas and NGLs, and the interchangeability of feedstocks, "this is another nail in the coffin of the argument that says the only way for crude oil prices to go is up," he says.

Europe's petrochemical industry reliant on naphtha, remains at a disadvantage

[ian807]

As with all peak hydrocarbon discussions, you're talking about energy.

So, if you go to the natural gas website, http://www.naturalgas.org/overview/resources.asp

you see that North America has about 320 trillion proved cubic feet of natural gas reserves.

Energetically, 5800 cubic feet natural gas = one barrel of oil.

This means that all the natural gas in the continental USA equals 55 billion barrels of oil equivalent. The USA uses about 9 billion barrels of oil a year. So, all this natural gas equals just over 6 years of oil supply.

Of course, if you actually converted the natural gas to oil, you'd get conversion losses. With a 60% conversion efficiency (see link below), you're looking at about 3.6 years. If we get more efficient, we might push that up to 5 years, after which, we'd be out of gas. Literally.

So, sure. Include it. An extra 5 years. Tops.

Natural Gas to Oil conversion efficiency: (http://books.google.com/books?id=WZKxhKpaMV8C&pg=PA50&lpg=PA50&dq=%22natural+gas+to+oil%22+conversion+efficiency&source=bl&ots=sKN72HqJje&sig=pf2p5lev8jehzZJpW72CMoRLIJo&hl=en&sa=X&ei=pqAtUPWRJ_K5yQGXtoCYBw&ved=0CGkQ6AEwAzgK#v=onepage&q=%22natural%20gas%20to%20oil%22%20conversion%20efficiency&f=false)