Gas Plant Rationalization
The Prize and The Pitfalls
GPAC 4th Qtr. Conference
December 6, 2006
Bart van Schaayk, P.Eng.
Principal
Gas Processing Management Inc.
What is gas plant rationalization?
Basically its when one existing plant can
do the job of two (or more) existing
plants, and do it more efficiently – at
least theoretically.
Definitions
Rationalizer – the plant that remains after
rationalization.
Rationalizee – the plant that doesn’t
remain, at least in its original configuration.
Certainties in Life
The well known ones…
Death
Taxes
Now the ones applicable to gas plants…
Natural gas reserves deplete
Majority of operating costs are fixed
They have limits on their economic reach
They have turn-down limitations
Regulations are constantly changing
Equipment eventually needs replacing
Question - Will plant rationalization cure these
ills?
Answer – It depends.
Rationalization?
1.
2.
3.
4.
5.
6.
7.
Forget the norm
Those darn hidden costs
The control game
The Crown impact
Get real
Phase identity – GJ’s or NGL’s
Fear of commitment
1. Forget the Norm
The Norm
The Rationalizee
Pays all the capital costs
Pays the Rationalizer’s standard processing fee
Gives up its third party business
The Rationalizer
Counts his money
The Norm won’t work
Too great a burden on the Rationalizee
2. Those Darn Hidden Costs
Rationalization often brings costs other
than processing fees.
Capital
Field processing – dehydration and
compression
New, modified or extended gathering
system
Operating
Field processing
Early site abandonment and reclamation
3. The Control Game
Commodity Economics vs. Cost
Economics
Are you comfortable that no longer
operating your gas plant will not erode
the potential cost reduction?
How well are the Rationalizee and
Rationalizer align?
4. The Crown Impact
Rationalization can have an impact on the
Rationalizer’s allowable Alberta GCA deduction on
both the capital and operating cost components.
Capital component - the increased third party
throughput could reduce the Rationalizer’s
available GCA deduction.
Operating cost component
• No impact on the non-designated (i.e. smaller) gas plants
• Potential reduction in GCA deduction for the designated
gas plants (38 largest in Alberta).
5. Get Real
Realistic financial expectations a must
for both parties.
Reasonable sharing of the economic
prize
Lower per unit opex
Avoided capital expenditure
Reduced fuel gas consumption
Greater third party processing business
Greater operating efficiencies
NGL uplift
6. Phase Identity: GJs or NGLs
Particularly significant if…
The raw gas stream contains a reasonable
amount of C3+, and occasionally C2.
There is a marked difference in the NGL
recovery capabilities of the plants.
The Rationalizee and the Rationalizer have
different views on the value of NGLs, or their
ability or desire to capture any uplift in value.
Could become an “give” in
rationalization negotiations.
7. Fear of Commitment
Plant rationalization will not happen if there
is not an genuine commitment to the
process.
It’s too easy to walk away from the table.
Few rationalization scenarios are
straightforward.
Complications will deter the less committed.
They also provide opportunities to find
common ground or innovative solutions.
In Summary
In a maturing WCSB, opportunities for
gas plant rationalization should
increase.
As in most negotiations, win-lose
seldom works, particularly in the longterm. This applies to plant
rationalization as well.
Do the homework and understand the
prize and the pitfalls.