Callie Mitchell, RBN Energy LLC
Over the next five years, production of natural gas liquids (NGL’s) from gas processing plants will increase by at least one million barrels per day, or about 40% over 2012. Perhaps more. That’s good news for natural gas producers, processors and end-use markets. But there is a catch.
The rate of production does not match up with demand. While production is a steady, “ratable” volume, demand is anything but ratable. Demand swings with petchem feedstock economics, the gasoline blending season, weather and a myriad of other factors. The flywheel that balances supply and demand on any given day is storage. But not just any storage. For NGLs, storage of large volumes means salt caverns. Huge caverns thousands of feet below the surface. In this NGL storage blog series starting today, we’ll look at the history of NGL salt storage, where it exists, how it is used, and where more of it is needed. In this first installment we’ll go all the way back to the origin of NGL salt storage. All the way back to Smoky Billue.
NGL Storage recap
But before we get to Smoky, let’s get everyone caught up with the NGL blogs that set the stage for our review of NGL storage. In “Carbon Rich Value High – Trading and Pricing Natural Gas Liquids Part I, Part II, and Part III we described the markets for each of the five NGLs and the way that they are traded. We put the spotlight on propane, the product with the biggest demand swing in Part II of our “Long and Winding Road” series. And earlier this week we looked at the seasonal use of normal butane for RVP control in motor gasoline in Regulatory Gas Pressure Party. Propane and normal butane have the largest seasonal inventory swings of the NGLs, which can be seen in the graph below of Energy Information Administration (EIA) overall US NGL storage totals for the five products over the last 6 years. Propane is the brown line and normal butane is the green line. Clearly storage is an integral part of the NGL marketplace.
The problem with storing NGLs
Look at that graph. Where do you put 75 million barrels of propane and 50 million barrels of butane? You can’t put these products in regular petroleum storage tanks – like those used for crude oil and motor gasoline. The vapor pressures of these products are much too high. The only way propane and butane in tanks stay in liquid form is to keep them under high pressure in thick walled ‘bullet’ or ‘sphere’ containers – or to chill them to -44F in the case of propane and 30F in the case of butane. It is even more difficult to store ethane. It takes extreme pressure to keep ethane in liquid form, or it must be refrigerated to -127F (super cold). Only natural gasoline can be stored in regular petroleum storage tanks.
Back in the early days of NGLs, the difficulties associated with storage were huge barriers to the development of NGL markets. For example, in the summer propane was flared because it was not needed for heating. In the winter there was not enough propane to go around. It was a problem that needed to be solved, not only for propane, but the other NGLs as well.
Up to now, the story of how the problem was solved has only been known by that small fraternity of NGL old timers. Now you too will know this bit of history.
It all took place in a little town in Kansas called McPherson, and the main character is Garrison Haines Billue, fondly known as “Smoky” Billue, sometimes spelled “Smokey”. And what a character he was. He was a very colorful and physically conspicuous man whose brainchild was turning underground salt formations into NGL (LPG) storage facilities. Thanks to Smoky, the LPG (NGL) industry became as large and successful as it is today.
Smoky made quite a mark and an impression on nearly everyone he met. Smoky was well over 300 pounds, generally wore a sombrero or a cowboy hat over a long pony-tail, wore wildly colorful shirts, and either a leather vest and jeans, or overalls. There was usually a Colt .45 stuck in a belt somewhere and a bowie knife attached to his fancy tooled red and white cowboy boots. Occasionally he’d have a large moose horn hung around his neck and was known to threaten to blow it in very public places. A true western character who people remembered. Despite his look, and first impression, Smoky was actually an intelligent and well informed man with the tenacity to make things happen.
Commercial sales of LPG (propane and butane) actually started in 1912. Back then, the demand for LPG existed during heating season, and that was it. For all the reasons cited above, there was little storage, and what was available was expensive.
In the early 1950’s (before there were any LPG pipelines) Smoky and some of his associates (bandits?) conceived the idea of storing LPGs underground in caverns dissolved out of salt deposits that ran from Kansas southwestward all the way to southern Texas and New Mexico. Today the vast majority of all NGL inventories are stored in salt caverns, and salt caverns are also used for natural gas, crude oil and many other products. Here’s the story of how it all got started.
Smoky was born in 1912 near Webber’s Falls, Oklahoma, graduated from Junior College at Warner, Oklahoma and went to work for Oklahoma Public Service Company. This inspired his interest in mechanical engineering and he went on to design Army camps during the war. After the war, he was employed constructing gasoline refining plants and in 1947 was construction superintendent for the Sid Richardson Gasoline Company in Kermit, Texas. This is where he got the nickname Smoky after he was covered in black soot after working four days at a carbon plant in Odessa. This is also where he became interested in what to do with LPG’s. Sid Richardson had its share of them, and was faced with flaring some of the product.
It occurred to Smoky that every time an oil well was drilled in West Texas, they’d always hit a layer of salt at a certain depth. He also knew that they had to put salt in the drilling mud to keep the salt layer in the formation from dissolving from contact with fresh water in the mud. So, he thought, what would happen if a part of that formation was dissolved on purpose to create a cavity for storing LPGs down there? His boss thought it was a good idea and told him to find a buyer and he’d get a patent going.
As the story goes, Smoky put on his colorful western duds and fancy red and white boots looking for that buyer. While attending a hearing called by the Texas Railroad Commission demanding answers to why producers of crude and natural gas were flaring their NGL’s, he met John Oxley, President of the Texas Natural Gas Company. John Oxley was very frustrated about his own flaring problems and listened to Smoky’s idea. He agreed to try one of these salt cavern contraptions and would provide the product if Smoky would handle the process of washing the cavern (process described below). Soon thereafter the first 50M Bbl salt storage well was established at Texas Natural Gas Company’s gas plant in West Texas.
About the same time, Sid Richardson, decided to try a small salt cavern at their Kermit plant. And it worked too. The first time they put 30M Bbls of propane in the brand new cavern and took it out (the same day) they had quite an audience, including local gas companies and the Defense Department. All were quite impressed. Every bit of the propane was recovered and the quality of the product had not changed. This was the first time Smoky felt they were a success.
Unfortunately for Smoky and Sid Richardson a patent was never established and Smoky’s idea caught on quickly. There was a lawsuit or two and there was some damage money that changed hands, but the secret was out - quickly changing the dynamics of the entire NGL business.
How did it work?
The fundamentals in the 1950’s are pretty much the same today. Here is a quick overview. Apologies to engineers everywhere.
Underground cavern salt is made of the same substance as table salt only with some sand and other impurities. But of course it is not granulated like table salt. It is a giant block of salt that if mined looks like walls of dirty glass.
To create the cavern, first a well is drilled to the top of the salt formation and casing is cemented into the hole. On top of the pipe is a wellhead with a smaller pipe that is placed in the larger pipe and extends into the salt formation. Fresh water is pumped into the smaller pipe, the water dissolves some of the salt, and the salt water (brine) flows to the surface in the larger pipe. A cavern capable of holding 100MBbls of NGL product takes months to “leach” or wash out. It takes 6-7 Bbls of water to dissolve one barrel of salt. Water creates a natural glaze over the salt sealing it and making it leak-proof.
Nearby, on the surface, a large pit is dug and lined with materials to keep salt water from leaking into the ground. This is the brine pit which fills with brine as it comes out of the well. This is the same brine that will be pumped back through the smaller pipe to displace the product from storage when needed. Brine is heavier than propane so it stays separated and also easily displaces the LPG when it is pumped back up.
Smoky did make some money out of court settlements from his early work and after his idea became public domain, he went on to launch his own storage leasing business. He would build his own storage caverns and lease them to third parties. Eventually he had eighty caverns in the Conway – McPherson, KS area capable of holding eight million barrels of product – big volumes in those days. He leased to Mid America Pipeline Company (then Mapco, now Enterprise MAPL), the Army Air Force (Shilling Air Base in Salina, KS) for jet fuel (eventually converted to NGL’s), and thirty other NGL companies, many of whom shipped on Mapco. His business was sold to Home Oil Company in 1974 for $10MM. Lots of money in those days.
After Smoky retired, he lived in Webbers Falls and gave generously to the community. Google Smokey Billue and you can see how fondly he is remembered. He passed away in 1990 and is buried in Gore, Oklahoma. And his colorful eccentric western clothes and antics? He quit wearing them when he retired. He said they were all part of the salesmanship.
Underground salt storage
In the years after Smoky, underground salt storage of hydrocarbon products evolved a lot – extending from the bedded salt formations in Kansas to the huge domed salt formations in Mont Belvieu. In this series we will look at where underground salt formations developed, how they are used and the differences in the use of salt storage for natural gas and liquid products. Smoky would be proud.
Thanks to Rufus Jarman who wrote “The Energy Merchant” the first book I was given (and told to read) when I started in this business many years ago. It helped provide most of the information here and confirmed some of my 35 year old memories.