Update on LNG Acivity in Western North Dakota -- The Bakken, North Dakota, USA

Updates

May 8, 2012: There are three huge stories coming out of the unconventional oil/shale/fracking story: a) oil; b) natural gas; and, c) ethylene.

Two of the three stories are well known:

• The Bakken is an oil field, and this blog is mostly about oil, the first story.
• The second story is how the massive amount of natural gas in North America will have a disruptive effect on the US energy policy going forward. Essentially, it's this: natural gas will pretty much eliminate alternate non-transportation energy sources (nuclear, coal, wind, solar). 

The third story is not as well known: ethylene. I don't think much about that story. It takes a lot of articles to remind me how big a story this really is. Read the original post for background regarding the ethylene story.

Over at Carpe Diem, there is another reminder regarding ethylene:

"The [shale] discoveries have prompted several firms — including Dow Chemical Co. and Shell Oil — to announce plans to build new North American ethylene crackers, with Shell making the almost-unheard-of decision to place its new cracker in western Pennsylvania, near the gas-rich Marcellus Shale. Other companies, including Chevron Phillips Chemical and Formosa Plastics, have announced plans to increase their North American polyethylene output as a result of the shale gas wave.

These three stories are huge.  I have to keep posting these stories to remind me how big these stories are, particularly the ethane/ethylene story.

Original Post

For folks who are new to the site or who have not read the earlier posts on the ONEOK cryo natural gas processing plants going up west of Williston, you should read an earlier post first, which will also link you to the post that started this discussion.

This post will also answer the question that is frequently asked, what does "O," "G," and "P,' or "PPROD," stand for on your royalty statement.

The individual who has really helped me understand what these plants are all about has provided a wonderful overview; it was posted as a comment but is reprinted here for those who may not read comments:

What should be noted is the natural gas liquids (NGL) that are a high fraction of the raw natural gas stream are higher value than the natural gas itself - about twice the value of methane for the Bakken.

ONEOK estimated the NGLs to be 6% of Bakken value, with 3% as NG. Untreated NG consists of methane, natural gas liquids (ethane, propane, butane, and nat gasoline), carbon dioxide, H2S, SO2, some nitrogen, and water vapor. The nat gas plants in ND separate out the CO2 and water, remove the sulfur, and separate the NGLs from the methane, and then liquefying the NGLs.

Almost as important as the four plants ONEOK that will operate is the $500 million NGL pipeline that ONEOK is constructing from near the MT/ND line to the Overland NGL pipeline in Colorado, which in turn feeds into Bushton, Kansas. At Bushton, ONEOK owns a fractionator complex that separates the NGLs into their own components. Each of these components have their own markets, which in most cases are compared to WTI prices.

See pp 71-90 on presentation
http://media.corporate-ir.net/media_files/IROL/12/120070/OKE-OKSAnnualInvestorDay-Sept2011%20FINAL1.pdf

Ethane is the key building block for the plastics industry - but first the ethane must be processed through a cracker that produces ethlyene. Much of the cracker capacity in North America had been shut down when NG and NGL prices were high, as foreign ethane had to be imported to stay operating (Dow Chemical, Ethyl and others nearly gave up on North America, leaving the chemical and plastic industry to Europe and the Middle East just three years ago). Now, older ethylene plants have been restarted in Texas and there is talk of building new NGL to plastic plants in the Utica/Marcellus region - which would take billions in capital.

Because of the NGL pipeline that ONEOK is building, the NGL side of the Bakken should be much more profitable. Most of the regional companies will contract with ONEOK, as the capital demands to reproduce what ONEOK is doing is huge ($1.7 billion or more) although larger companies (obviously Hess) as well as EOG, XTO, and others, may build additional plants / capacity, but choose to tie into ONEOK's pipeline.

An article on the massive changes ongoing in the NGL business: http://www.mywesttexas.com/business/oil/article_61c788ee-cabe-5f2c-bd39-55167a83e85f.html

A huge "thank you" for this information. Maybe the local newspapers will pick up this story and do a feature article on it. The Williston Herald has become too small a newspaper for some reason to carry this story, but this would be a great story for a paper like the Bismarck Tribune.