Natural gas liquids: Meaning, Criticisms & Real-World Uses

What Are Natural Gas Liquids?

Natural gas liquids (NGLs) are hydrocarbons that are components of natural gas and are separated from the gas stream as liquids. This process typically occurs in natural gas processing plants or field facilities through methods such as absorption or condensation. NGLs are part of the broader category of Energy Commodities and are valuable products distinct from methane, which is the primary component of natural gas. These liquids include a range of compounds such as ethane, propane, butane, isobutane, and natural gasoline (pentanes plus).³⁷ Natural gas liquids have diverse applications, serving as crucial raw materials for petrochemicals, fuels, and heating.³⁶

History and Origin

The origin of natural gas liquids is intrinsically linked to the extraction and processing of natural gas and crude oil. Both natural gas and NGLs are fossil fuel energy sources that formed over millions of years from the buried remains of plants and animals.³⁵ Initially, the focus of natural gas production was primarily on methane. However, as technologies for gas processing advanced, the economic viability of separating NGLs from the raw gas stream became apparent. This separation became increasingly profitable due to the diverse and high-value applications of individual NGL components. The U.S. Energy Information Administration (EIA) provides detailed information on what natural gas liquids are and how they are utilized across various sectors of the economy.³⁴ The increased targeting of liquids-rich basins by oil and natural gas producers, influenced by higher crude oil prices, further incentivized NGL production, pushing U.S. NGL field production to record highs.³³

Key Takeaways

Natural gas liquids (NGLs) are valuable hydrocarbons extracted from natural gas, distinct from methane.
Common NGLs include ethane, propane, butane, isobutane, and pentanes.³²
NGLs are critical raw materials for petrochemical production, plastics, and various fuels.³¹
Their production often provides additional revenue streams for natural gas and oil companies.
Transportation and storage of NGLs require specialized infrastructure due to their volatile nature.

Formula and Calculation

While there isn't a single universal formula for "natural gas liquids" as a whole, the value of a stream of NGLs is often determined by the combined market value of its individual components. The amount of NGLs recovered from a natural gas stream is often expressed in terms of barrels per day (b/d) or gallons per thousand cubic feet (GPM) of natural gas.

The energy content of NGLs can be calculated based on the energy content of each component. For example, the approximate energy content for individual NGLs:

Ethane: Approximately 1,733 British thermal units (BTU) per cubic foot.
Propane: Approximately 2,516 BTU per cubic foot.
Butane: Approximately 3,260 BTU per cubic foot.

The total energy value of an NGL stream could conceptually be represented as:

E_{total} = \sum_{i=1}^{n} (V_i \times E_i)

Where:

(E_{total}) = Total energy value of the NGL stream
(V_i) = Volume of individual NGL component (i) (e.g., ethane, propane)
(E_i) = Energy content per unit volume of individual NGL component (i)
(n) = Number of different NGL components

This calculation is vital for understanding the overall energy potential and economic value of the NGL stream within the broader energy market.

Interpreting the Natural Gas Liquids

Interpreting natural gas liquids involves understanding their composition, market pricing, and end-use applications. The specific types of NGLs present in a natural gas stream, such as ethane, propane, or butane, dictate their primary uses and, consequently, their market value.³⁰ For instance, ethane is primarily used for ethylene production, a key building block for plastics, whereas propane is widely used for heating and cooking.²⁹

Changes in the volume of NGL production or shifts in their respective market prices can significantly impact the profitability of natural gas producers and the broader energy infrastructure sector. Economic reports, such as those published by the Federal Reserve Bank of Dallas, often analyze NGL production trends and their impact on the regional and national economy, providing insights into market conditions and future outlook.²⁸

Hypothetical Example

Consider "GasCo," a hypothetical energy company operating a natural gas processing plant. GasCo extracts raw natural gas from wells, which contains a mixture of methane and natural gas liquids. After processing, the plant separates the NGLs into individual components: ethane, propane, and butane.

In a given month, GasCo produces:

100,000 barrels of ethane
75,000 barrels of propane
50,000 barrels of butane

If the average market prices for these NGLs are:

Ethane: $0.40 per gallon
Propane: $0.80 per gallon
Butane: $1.10 per gallon

(Assuming 1 barrel = 42 gallons for simplification)

The total revenue from NGL sales for the month would be:

Ethane Revenue: (100,000 \text{ barrels} \times 42 \text{ gallons/barrel} \times $0.40/\text{gallon} = $1,680,000)
Propane Revenue: (75,000 \text{ barrels} \times 42 \text{ gallons/barrel} \times $0.80/\text{gallon} = $2,520,000)
Butane Revenue: (50,000 \text{ barrels} \times 42 \text{ gallons/barrel} \times $1.10/\text{gallon} = $2,310,000)

Total NGL Revenue = $1,680,000 + $2,520,000 + $2,310,000 = $6,510,000

This example illustrates how the separation and sale of natural gas liquids contribute significantly to GasCo's overall revenue, demonstrating their economic importance beyond just methane sales. The revenue calculation highlights the direct impact of market prices and production volumes on a company's financial performance.

Practical Applications

Natural gas liquids are integral to various sectors, demonstrating their versatility and economic significance. Their applications span industries from energy to manufacturing.

Petrochemical Feedstock: Ethane is a primary feedstock for ethylene, which is then used to produce plastics, antifreeze, and detergents. Propane and butane also serve as petrochemical feedstocks for various chemical-based products.²⁷,²⁶ This makes NGLs crucial for the plastics and chemical industries.
Fuel: Propane is widely used for residential and commercial heating, cooking, and as an alternative vehicle fuel (autogas) in some regions.²⁵ Natural gasoline (pentanes plus) can be blended into motor fuels.
Energy Recovery: Pentanes are useful in energy recovery processes from oil wells and oil sands.²⁴
Pipeline Transportation: NGLs are transported through specialized pipelines alongside crude oil and refined products. The Federal Energy Regulatory Commission (FERC) regulates rates for interstate liquid pipelines, including those carrying natural gas liquids, through its Oil Pipeline Index, which considers factors like the Producer Price Index for Finished Goods (PPI-FG) to ensure just and reasonable rates.²³,²² This regulatory framework impacts the overall supply chain and cost of NGL delivery.
Market Analysis: Trends in natural gas liquids production and demand are closely monitored by economic bodies. For example, the Federal Reserve Bank of Dallas regularly surveys energy executives, providing insights into NGL production growth, exports, and the broader outlook for the oil and gas sector.²¹,²⁰ These surveys offer valuable data for investors and policymakers.

Limitations and Criticisms

Despite their widespread utility, natural gas liquids present certain limitations and criticisms, primarily related to their handling, storage, environmental impact, and market volatility.

Handling and Transportation Costs: NGLs are volatile and require specialized infrastructure for processing, storage, and transportation. This can lead to high handling and transportation costs, impacting their overall economic viability, especially when production increases outpace existing processing and distribution capabilities.¹⁹
Market Volatility: The prices of natural gas liquids are subject to the inherent volatility of the broader commodity trading and energy markets. Fluctuations in crude oil prices, natural gas prices, and the demand for specific NGL components can lead to significant price swings, affecting profitability for producers and end-users.¹⁸
Environmental Concerns: As hydrocarbons, NGLs contribute to greenhouse gas emissions when burned as fuel. Their extraction and processing also carry environmental risks, including potential leaks or spills. While industry efforts are underway to reduce methane emissions and flaring, environmental considerations remain a significant point of criticism for the broader fossil fuel industry, including NGLs.¹⁷
Regulatory Scrutiny: The transportation of NGLs, particularly through pipelines, is subject to federal regulation by entities like FERC, which oversees pipeline rates. While this regulation aims to ensure fair practices, ongoing legal challenges and reviews of rate-setting methodologies, such as the Oil Pipeline Index, can introduce uncertainty for pipeline operators and potentially impact investment in new energy infrastructure.¹⁶

Natural Gas Liquids vs. Liquefied Natural Gas (LNG)

Natural Gas Liquids (NGLs) and Liquefied Natural Gas (LNG) are both derived from natural gas but represent distinct products with different compositions, properties, and uses.

Feature	Natural Gas Liquids (NGLs)	Liquefied Natural Gas (LNG)
Composition	A mixture of hydrocarbons heavier than methane: ethane, propane, butane, isobutane, and pentanes (natural gasoline).¹⁵	Predominantly methane (CH₄), which is the lightest hydrocarbon.
Separation	Separated from raw natural gas through absorption, condensation, or other methods at processing plants.	Natural gas is cooled to extremely low temperatures ((-162^{\circ\text{C}) or (-260}\circ\text{F})) to condense it into a liquid.
Purpose	Used as petrochemical feedstocks (e.g., plastics), heating fuels, and blending components for vehicle fuels.	¹² Primarily used for long-distance transport of natural gas, as liquefaction reduces its volume significantly.
Form at STP	Remain liquid at typical storage/transport pressures and temperatures (though derived from vapor).	¹⁰ Requires cryogenic temperatures to remain liquid; returns to gaseous state at ambient temperatures.
Market	Often traded as individual components, with prices influenced by chemical and fuel demands.	⁸ Traded as a natural gas commodity, primarily for energy generation.

The confusion between NGLs and LNG often arises because both involve converting natural gas components into liquid form. However, NGLs are a mixture of heavier hydrocarbons that are extracted for their specific chemical properties and uses, while LNG is primarily methane that has been liquefied for efficient shipping.

FAQs

What are the main types of Natural Gas Liquids?

The main types of natural gas liquids include ethane, propane, normal butane, isobutane, and natural gasoline (also known as pentanes plus). These are all hydrocarbons with varying numbers of carbon atoms.

⁶### How are Natural Gas Liquids separated from natural gas?
Natural gas liquids are separated from raw, or "wet," natural gas in natural gas processing plants. The separation typically involves processes such as absorption, condensation, or cryogenics, which cool the gas to different temperatures to condense the various NGL components into a liquid state.

What are Natural Gas Liquids primarily used for?

Natural gas liquids have diverse uses. Ethane is mainly used to produce ethylene for plastics. Propane is widely used for residential and commercial heating and cooking. Butane is used in gasoline blending and as a feedstock for synthetic rubber. Overall, NGLs are crucial for the petrochemical industry and as various forms of fuel.,
⁵
⁴### Why are Natural Gas Liquids important to the energy industry?
Natural gas liquids are important because they add significant value to natural gas production, creating additional revenue streams for energy companies. Their separation also results in "dry" or pipeline-quality natural gas, which is safer and more efficient for transportation and consumer use. Furthermore, NGLs are essential feedstocks for many industrial processes, impacting global supply chains.,
³

Are Natural Gas Liquids the same as crude oil?

No, natural gas liquids are not the same as crude oil. While both are fossil fuel hydrocarbons and are often found together, crude oil is a complex mixture of liquid hydrocarbons that typically requires refining to produce usable products like gasoline, diesel, and jet fuel. NGLs are lighter hydrocarbons that are separated from the natural gas stream and have specific, distinct uses.,[²¹](https://www.eia.gov/energyexplained/natural-gas/)