I do not understand the subject topic well, even after reading what I can find on the internet whentaken in context with a statement that Linn regularly repeats whenever the topic is discussed in written releases. They state that if ethane is rejected it will affect production volume, but not revenue. Why doesn't it affect revenue IF it does affect production volume? Isn't production volume DIRECTLY related to how much revenue is generated?
There are two factors to the massive nationwide rejection of ethane.
The first and primary meaning is that ethane prices are so low it is more economic to just sell it as natural gas. So it moves through are system to be consumed as natural gas BTUs. An unforgivable national waste as it is one of the most useful substances on earth.
However, ethane has more energy than natural gas. Some times expressed as richness or wetness. However, there are very strict limits on how much ethane or richness can be transported in pipes. Even more so on ng tankers, just like propane.
Significant portions of the Marcellus shale were and are delayed by the inability to process the ethane. Enterprise Product Partners and others have ethane 'header' coming on line to transport the ethane to Mount Belieu. A tidal wave of supply of both low cost natural gas and ethane as a by-product.
Capital investment has been made to utilize some of the ethane. But our corporations are simply not willing to make the billion dollar investments in sufficient amount to utilize all of the supply due to Obama petulance and reliance on irrational political tactics.
EPD will be able to load either propane or ethane from their facilities. But ethane carriers are in short supply and the supply is small ships not really suitable to meeting Europe or Asia's needs. There is a surfeit of ng carriers being built and scheduled. But I have not read of any of there being turned into ethane carriers. Big disappointment as we have more ethane than our economy can use for some time.
LINE placed on ng puts to hedge their ngl production from Hugoton (65%?). LINE does not break out their ngl barrel but as this is a natural gas field it is likely ethane, propane and the very special kicker helium. As ethane is selling for the price of gas it is now hedged.
Hope this helps. Good fortune.
Bottom line ethane is too wet to ship by pipeline because the pipelines are not set up to ship ethane. Plus removing ethane drops the efficiency of nat gas. Obama as our Norris ethanol investor referred to has nothing to do with ethane. It is the fact that pipelines aren't set up to move ethane. It ruins the pipes.
A simpler way to view it; your NGL volumes are reduced, but your tailgate residue gas is increased since it now includes the ethane fraction and it will have a higher btu value. As a result, your revenue remains somewhat constant. At current ethane prices, 20-22 cents, you would be negative on value when adding on process and transport fees.
Natural gas is sold in mmbtu energy units not by MCf which is volumetric. If you strip the ethane from the gas stream you are removing btu's of energy so it follows that you will sell more volume (MCF) MMBTU for the gas contract. We work in MCf regarding production and reservoir engineering. We sell NG in MMBTU's.
Oiljars, hey bud it's been a while - since the MMR board days.
Wouldn't it also imply that Linn has separating capacity available in all the locations where the processor (not Linn) makes the decision regarding ethane rejection? That way revenues don't simply go to zero if the processor decides to reject.
Scaling back on ethane rejection, ultimately lowers production volumes. I believe if you inject ethane to often you can ruin the well Ethane is so cheap they can burn it off because it burns hotter