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Natural Gas Overview

  • There are approximately 580,000 wells producing oil and gas in the U.S.

  • Midstream companies provide infrastructure for transporting energy from producers to end-users.

Midstream Infrastructure

  • Midstream entities construct and operate:

    • Pipelines

    • Processing plants

    • Compressor stations

    • Storage fields

  • Goal is to transport raw natural gas from production sites to retail, industrial, and utility markets.

Upstream Operations

  • Upstream operators (oil and gas operators) are responsible for drilling, completing, and producing the wells.

  • At well sites, separators and heater treaters are used:

    • Separate oil, water, and natural gas into individual streams.

Transportation to Refineries

  • Crude oil and water are collected in separate tanks at the well site.

  • Downstream companies pick up crude oil or water for:

    • Disposal

    • Transportation to refineries.

Natural Gas Gathering Process

  1. Gas Gathering:

    • Involves pipeline transportation of natural gas from the well to processing facilities.

  2. Compression:

    • Uses stationary compressors to move gas to processing plants or transmission lines.

  3. Gas Processing:

    • Purifies raw natural gas by removing contaminants to produce pipeline quality dry natural gas.

Pipeline Network

  • Midstream companies lay pipelines connecting scattered wells:

    • Gas travels from wellhead to compressors and then to processing plants.

    • Initial gathering lines are often small diameter and low pressure.

Natural Gas Liquids (NGL) Removal

  • Processing plants subject gas to temperature and pressure changes to remove NGLs:

    • NGLs are delivered to y-grade lines for further transportation to various plants.

    • Remaining gas, primarily methane, is sent via larger pipelines to various customers and generation plants.

Oil and Gas Value Chain

  • Midstream: Processing, treatment, storage, transportation, and export.

  • Upstream: Exploration and production includes handling crude oil, natural gas, NGLs, and disposal of water.

  • Downstream: Distribution and export, refining of oil products, and management of natural gas supply.

Historical Context

  • Natural gas usage dates back over 3,000 years. First identified scientifically in 1776 by Allesandro Volta.

  • First private use for lighting in Philadelphia in 1822 after drilling in what is now the Marcellus Shale.

Regulatory Evolution

  • The Natural Gas Act of 1938 began regulation of the industry, allowing the government to set rates for gas transport.

  • The FERC replaced the FPC in 1977, leading to significant changes in gas pricing and pipeline ownership.

  • Order 436 (1985) transitioned interstate pipelines to "common carriers."

  • Order 636 (1992) enforced open access laws for pipelines, ensuring fair access for all customers.

Market Evolution

  • Post-deregulation saw the emergence of market centers or "hubs" for efficient distribution of natural gas.

  • From 1992 to 1998, gas consumption rose due to lower prices and economic growth.

Drivers of Price Fluctuations

  • Factors affecting natural gas prices include:

    • Market supply and demand;

    • Economic growth;

    • Severe weather events disrupting supply.

  • Hurricanes and severe weather increase natural gas prices due to production disruptions.

Seasonal Demand Impact

  • Winter increases gas demand for heating; cold snaps can lead to higher prices if supply can't keep up.

  • Summer's hot weather increases natural gas use for air conditioning, affecting prices similarly.

Role of Gas Storage

  • Underground storage helps meet demand spikes and supports pipeline operations, impacting overall supply.

  • Storage levels typically peak during warmer months (April-October) and decrease in colder months (November-March).

Competition with Other Fuels

  • Consumers can switch between natural gas, coal, and oil, impacting natural gas demand and prices.

  • Recent favorable gas pricing has led to increased natural gas use in the power sector.

Summary of Supply and Demand

  • Natural gas prices are relatively stable over time.

  • The average price from 2015 onwards is about $3.25/mmbtu, with fluctuations due to market dynamics.