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May 3rd, 2012

What is ‚??Wet‚?Ě Natural Gas?

by Andrew Price, President & COO

Previously I wrote about record low NYMEX natural gas prices. The rapid expansion of natural gas production from shale is a key factor driving prices lower.  Shale gas production has remained high – even as prices plummet – for many reasons. One important driver of shale gas production is that higher value products can be associated with the natural gas that comes out of the well. In many wells Natural Gas Liquids (NGLs) are the prize; therefore the value of the natural gas that also comes out of the well can continue to fall without putting exploration and production companies into the red. NGLs have maintained their value as they are also derived from expensive crude oil.

Drillers have shifted production from regions with predominantly “dry gas” to regions with “wet gas”. Dry gas is mostly methane, C-H4, and although natural gas is rapidly closing the sizable gap to coal and petroleum in importance in the US economy, it is no longer driving near term exploration and production decisions due to its rock bottom price.  In addition to methane, Wet Gas has a number of associated NGLs that can be separated in processing plants and sold as additional products.

NGLs are used for a wide variety of commercial and industrial applications. A table – courtesy of the Energy Information Administration - showing the primary NGLs and how they are used is shown below.

Shale table

In many cases, it is the value of NGLs produced at a well that drives profitability. Any natural gas that is produced is along with the NGLs is little more than a bonus, at least at current prices. The high price of NGLs could therefore help keep natural gas prices depressed as wells continue to be sunk in shale fields with a high concentration of “Wet Gas”.

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