CHAPTER 2 MOVING THE MOLECULES TO MARKET: AN INTRODUCTION TO HYDROCARBON PROCESSING AND TRANSPORTATION

• Jurisdiction: United States

Oil and Gas Agreements: Midstream and Marketing
(Feb 2011)
CHAPTER 2
MOVING THE MOLECULES TO MARKET: AN INTRODUCTION TO HYDROCARBON PROCESSING AND TRANSPORTATION
Monika Ehrman
Pioneer Natural Resources
Irving, Texas

MONIKA EHRMAN is Senior Counsel with Pioneer Natural Resources Company, in Dallas, Texas, where she supports the Barnett Shale, Eagle Ford, and Midcontinent asset groups, domestic energy marketing, and bankruptcy disputes/litigation. She previously worked in the Dallas office of Locke Lord Bissell & Liddell, where she practiced oil and gas litigation and represented integrated and independent energy companies, as well as individual mineral interest owners. Ms. Ehrman received her B.Sc. in Petroleum Engineering from the University of Alberta; and later received her J.D. from Southern Methodist University, in Dallas. Prior to law school, she worked as a petroleum engineer in the upstream, midstream, and pipeline sectors of the energy industry. In addition to her experience with the technical aspects of the industry, she has also worked as an analyst in the areas of commodity risk management and energy trading. Ms. Ehrman currently serves as Council Member on the Oil, Gas and Energy Resources Law Council of the State Bar of Texas. She has presented and written on a variety of energy topics. Her publications include "Evaluate Twice, Elect to Consent Once: A Review of XTO Energy Inc. v. Smith Production Inc.", Oil, Gas and Energy Res. Law Section Rep. (June 2010); "Duties of the Executive", The University of Texas School of Law 33rd Annual Ernest E. Smith Oil, Gas and Mineral Law Institute (2007) (coauthor with J. Robert Beatty); and "Competition is a Sin: The Evaluation and Effects of a Natural Gas OPEC", 27 Energy L.J. 175 (2006).

Overview

• Overview of hydrocarbon properties

• Hydrocarbon processing

— Gathering

— Separation

— Water handling

— Dehydration

— Sweetening

— Liquid extraction

— Compression

— Transportation

— Metering

• Measurement standards

[Page 2-2]

Hydrocarbon Properties

• Oil and gas are the liquid and gaseous forms of petroleum

• Petroleum is any naturally-occurring hydrocarbon found beneath the earth

• Petroleum hydrocarbons are naturally-occurring organic compounds (carbon + hydrogen)

• Occur in a variety of states from solid to gaseous

Increasing Hydrogen and Carbon Atoms

• Increase in Carbon and Hydrogen ? Increase in chemical bonds ? Increase in energy content

[Page 2-3]

If only it were this simple ........

Hydrocarbon Processing

[Page 2-4]

Gathering

• Too expensive for each wellhead to have own processing unit; system of flowlines connect wells to central processing facility (field processing area or processing plant)

— Radial gathering system

— Trunk line gathering system ? Used in larger fields

• All produced fluids flow through gathering lines

• If no gathering system in place, fluids can be trucked ? Not for gas wells

[Page 2-5]

Hydrocarbon Processing

Separation

• Operation where well stream passed through 2+ separators arranged in series

— First-stage separator, second-stage separator, etc.

• Purpose of multi-stage separation to maximize hydrocarbon liquid recovery and provide maximum stabilization to resultant phases leaving final separator

— Well stream must be separated into three phases ? Gas and liquids (oil and water)

[Page 2-6]

• Operation mainly uses gravity segregation

— Inlet fluid flows against diverter plate that separates gas and liquid

— Mist extractor collects liquid droplets from gas stream before it leaves separator

• Separators can be vertical, horizontal, or spherical depending on requirements

• If water cut is high, free water knock out vessel used for primary separation

• Heater/Treater used to treat oil-water emulsions

[Page 2-8]

Separation - Crude Oil

• Oil flows into sales pipeline or tanks for storage

• If tanks are used, producers sell oil to third-party, who subcontracts with trucking company

• Important to negotiate risk of loss during transport

— Indemnification language

Separation - Water Handling

• If separation occurs at wellsite, water flows into tanks and is trucked to a processing facility

• Water tank has skimmer to remove any residual oil that floats to the top

• Water from separators used for reinjection (enhanced oil recovery) or sent to disposal well

[Page 2-9]

Hydrocarbon Processing

[Page 2-10]

Dehydration - Natural Gas

• Even after separation, gas stream contains water vapor, which must be removed

— Water reduces value of product

— Corrosion problems

— Hydrate formation

• Formed by union of water with other substances

• Can form in gas gathering facilities at reduced temperatures and high pressures

• Can plug the pipelines and significantly affect production operations

• Operation used to remove water and water vapors from gas

— Glycol dehydrator uses liquid desiccant

• Glycols ? Ethylene, diethylene, triethylene, etc.

— Dry-bed dehydrator uses solid desiccant

• Silica gel or calcium chloride (CaCl2)

• Designed to handle only water and gas vapors

[Page 2-12]

Hydrocarbon Processing

Sweetening - Natural Gas

[Page 2-13]

• Amine unit

• Sulphur block

• Difficult to dispose of or sell

[Page 2-14]

Hydrocarbon Processing

Liquid Extraction

• If natural gas liquids (NGLs) have higher value as separate products, liquids are removed from gas stream

• Removal process similar to dehydration process

— Absorption method

• Absorption method uses absorbing oil to attract NGLs

— Cryogenic expansion method

• Drop temperature to ˜ -120F

• Gas chilled using turbo expander process

— Better at recovering lighter hydrocarbons (C2+)

[Page 2-15]

Liquid Extraction - Absorption

[Page 2-16]

Liquid Extraction - Cryogenic

[Page 2-17]

Hydrocarbon Processing

Compression

• Compression can be done at all stages of hydrocarbon processing ? Interstage compression

— Before processing, pressure may need to be increased (e.g., flow from low wellhead pressure to high separator pressures)

• Two main types of compressors used in gas industry

— Reciprocating

— Centrifugal

• Usually most expensive item in an upstream processing facility

[Page 2-18]

Transportation

• After processing, hydrocarbons taken to sales typically via large, interstate/intrastate transmission lines

• Point-of-transfer between producer/processor and third-party purchaser/pipeline is the sales meter at specified location

— Transfer of title also determined in purchase and sale agreement

[Page 2-19]

• Natural gas pipeline

• Crude oil pipeline

[Page 2-20]

Metering

• Common types of meters:

— Direct / Positive displacement

• Used for liquids

• Mechanically isolate and pass known volume of liquid with every revolution

— Inferential / Differential Pressure

• Used for gas

• Velocity (gas flow rate) inferred from pressure differential caused by flowing gas through a restriction in the line (orifice plate)

Metering

• Positive displacement meter

[Page 2-21]

• Orifice meter

Measurement Standards - Natural Gas

• Terms set forth in gas purchase and sale contract

• Found within contract or as exhibit to contract (e.g., Standard/General Terms & Conditions)

• Terms usually address:

— Receipt and delivery pressure

— Gas quality

• Grains of sulphur and hydrogen sulphide

• Volume of oxygen and carbon dioxide

• Temperature

• Water vapor content

• Bacteria-free

[Page 2-22]

Measurement Standards - Crude Oil

• Terms set forth in purchase confirmation:

— Specific Gravity

• Scale developed by API for measuring relative density of petroleum liquids (degrees)

— Reid Vapor Pressure

• Common measure of and generic term for gasoline volatility

• Conoco Terms and Conditions (1993) usually attached to or referenced in crude oil contract

Reference Material

• American Petroleum Institute (API) Standards

• GPSA Engineering Data Books

• Appendices

— Appendix A: EIA Natural Gas Processing Overview

— Appendix B: Example of General Terms & Conditions

— Appendix C: Conoco General Provisions

[Page 2-23]

Contact Information

Monika Ehrman

Pioneer Natural Resources

monika.ehrman@pxd.com

(972) 444-9001

www.pxd.com

[Page 2-25]

Appendix A Natural Gas Processing: The Crucial Link Between Natural Gas Production and Its Transportation to Market

This special report examines the processing plant segment of the natural gas industry, providing a discussion and an analysis of how the gas processing segment has changed following the restructuring of the natural gas industry in the 1990s and the trends that have developed during that time. It focuses upon the natural gas industry and its capability to take wellhead quality production, separate it into its constituent parts, and deliver pipeline-quality natural gas (methane) into the nation's natural gas transportation network. Questions or comments on the contents of this article may be directed to James Tobin at James.Tobin@eia.doe.gov or (202) 586-4835, Phil Shambaugh at Phil.Shambaugh@eia.doe.gov or 202-586-4833, or Erin Mastrangelo at Erin.Mastrangelo@eia.doe.gov or (202)-586-6201.

The natural gas product fed into the mainline gas transportation system in the United States must meet specific quality measures in order for the pipeline grid to operate properly. Consequently, natural gas produced at the wellhead, which in most cases contains contaminants¹ and natural gas liquids,² must be processed, i.e., cleaned, before it can be safely delivered to the high-pressure, long-distance pipelines that transport the product to the consuming public. Natural gas that is not within certain specific gravities, pressures, Btu content range, or water content levels will cause operational problems, pipeline deterioration, or can even cause pipeline...