Ubs - Introduction to Energy - Natural Gas Liquids

Natural gas liquids

Natural gas liquids (NGLs) comprise heavier hydrocarbon fractions, which are

extracted in liquid form from natural gas, usually at or near the point of gas

production, or in a separate processing or treatment plant. NGLs can be further

classified as ethane, liquefied petroleum gas (LPG) – mainly propane and

butane – and condensate (natural gasoline), the latter being in liquid form.

Natural gas liquid margins are influenced by two factors: natural gas prices and

crude oil prices. Natural gas is the feedstock for NGLs. Wet natural gas is piped

into a natural gas processing plant where impurities are stripped out, resulting in

dry natural gas. These impurities, which include propane, ethane and butane, are

packaged and sold as NGLs.

Regional trends

Two of the world's top three producing areas – the FSU and North America –

have seen their production decline, while the rest of non-OPEC has enjoyed a

period of increasingly rapid growth.

As the FSU abandoned the guiding principles of communism but failed to make

the full transition to capitalism, it suffered an unprecedented collapse in

production. It dropped by 45% from its 1987-88 peak of 12.6 mb/d in just 10

years, before starting to stabilise and edge upward in the mid-to-late 1990s.

Indeed,