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Over the past five years, the production of natural gas liquids from gas processing plants has soared by almost 2 million barrels per day (2 MMb/d), or about 60%. That has been great 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 the gasoline blending season, cold weather (or lack thereof) in the propane market, export demand, petchem feedstock economics, the impact of COVID-19 on transportation fuels, and a myriad of other factors. The flywheel that balances supply and demand on any given day is storage. Not just any storage, though. For NGLs, storage of large volumes means salt caverns. Huge caverns thousands of feet below the surface. Today, we update one of RBN’s Greatest Hits blogs and take a deep dive into the history of NGL storage — all the way back to Smoky Billue.  NGL Storage Recap We’ve looked at NGL storage frequently, including in a Backstage Pass Drill Down report (Wild Ride - What’s Driving NGL Prices) and, most recently, in the RBN blogosphere, where last year we reviewed Texas NGL storage facilities in a four-part blog series (Friends (and NGL Storage) in Low-Lying Places). We have explored the huge NGL storage facilities at Mont Belvieu, where over the past 60-plus years about 260 MMbbl of storage capacity has been developed — more than anyplace else in the world. Figure 1 lays out the capacity operated by the big players in Mont Belvieu (left pie chart) and elsewhere in Texas (right pie chart). Figure 1. Existing NGL Storage Capacity at Mont Belvieu and Elsewhere Along the Texas Coast. Source: RBN (Click to Enlarge) So why do we need so much NGL storage? One big reason is shown in Figure 2. Due to the seasonal demand swings for some NGLs, a lot of storage is necessary to squirrel away barrels in the summer when demand is low and to bring these barrels to the market in the winter when demand is high. That is particularly true for propane (orange line) and normal butane (gray line). Propane is used extensively as a heating fuel so demand is higher when weather is colder while normal butane surges in the winter when additional volume can be blended into motor gasoline without exceeding Reid Vapor Pressure (RVP) specifications. Lately, there has also been a need to store large volumes of ethane (blue line) due to production exceeding petrochemical demand for the feedstock. And you can’t put most of 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 that propane and butane in tanks stay in liquid form, for example, is to keep them under high pressure in thick-walled “bullet” or “sphere” containers, or to chill them to minus 44 degrees Fahrenheit (°F) in the case of propane and 30°F 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 minus 127°F — super cold, in other words. Only natural gasoline can be stored in regular petroleum storage tanks.
Back in the early days of the energy business, the difficulties associated with storage were huge barriers to the development of NGL markets. For example, in the summer months, propane was often flared because it was not needed for heating. Then, 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! Figure 2. U.S. NGL Inventories. Source: Energy Information Administration Introducing Smoky It all took place in a little Kansas town called McPherson, which is located about seven miles east of Conway, KS. The main character is Gaines H. 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 storage facilities. Thanks to Smoky, the NGL sector became as large and important and successful as it is today. Smoky made quite a mark and an impression on nearly everyone he met. He weighed well over 300 pounds, generally wore a sombrero or a cowboy hat over a long ponytail, 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) started way back before 1915. Back in those days, the demand for LPG existed during heating season, and that was it. For all the reasons cited above, there was little storage capacity, and what was available was expensive. In the early 1950s (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 such salt caverns; salt caverns are also used for petrochemicals, natural gas, crude oil, and many other products. Here’s the story of how it all got started.  Smoky’s Story Smoky was born in 1912 near Webber’s Falls, OK; graduated from a junior college in Warner, OK, and in the early 1930s went to work for Oklahoma Public Service Co., the electric utility. His work there inspired his interest in mechanical engineering and he went on to design Army camps during World War II. After the war, he was employed constructing natural gasoline processing plants (sometimes known as casing-head gasoline plants, which were the precursors to today’s NGL processing plants) and in 1947 was construction superintendent for the Sid Richardson Gasoline Co. in Kermit, TX. 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 LPGs. Sid Richardson, an oil industry pioneer in Texas, had its share of them and was faced with the need to flare 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 mix salt into 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 NGLs, he met John Oxley, president of the Texas Natural Gas Co. 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 said he would provide the NGL product if Smoky would handle the process of washing the cavern. (That process is described below.) Soon thereafter, the first 50-Mbbl salt storage well was established at Texas Natural Gas Co.’s gas plant in West Texas. About the same time, Sid Richardson decided to try a small salt cavern at the company’s Kermit plant. And it worked too. The first time they put 30 Mbbl 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 U.S. 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 that Smoky knew for sure that his idea was a real winner. 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 that Smoky employed in the 1950s 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. Instead, it is a giant block of salt that if mined in slabs 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 100 Mbbl of NGL product takes months to “leach” or wash out. It takes 6 or 7 barrels 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 saltwater 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’s Storage Leasing 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, Smoky had 80 salt caverns in the Conway-McPherson area in Kansas capable of holding 8 MMbbl of product — big volumes in those days. He leased to Mid America Pipeline Co. (then Mapco, now Enterprise MAPL), the Army Air Force (Shilling Air Force Base in Salina, KS) for jet fuel (eventually converted to NGLs), and 30 other NGL companies, many of which shipped on the Mapco pipeline. His business was sold to Home Oil Co. in 1974 for $10 million, which was lots of money in those days. Gaines H. “Smoky” Billue After Smoky retired, he lived in Webbers Falls (southeastern Muskogee County, OK) and gave generously to the community. Google Smoky Billue and you can see how fondly he is remembered. He passed away in 1990 and is buried in Gore, OK. 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 that help make Mont Belvieu the NGL mecca that it has become. Smoky would be proud. [A special 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.]  "East Bound and Down" was written by Jerry Reed and Dick Feller. It was written for the soundtrack of the film, Smokey and the Bandit, and appears as the 10th song on the soundtrack album. Produced and sung by Jerry Reed, it was released as a single in August 1977 and went to #2 on the Billboard Hot Country Singles chart. Reed, who was a co-star in Smokey and the Bandit, also released the song on his 1977 solo album of the same title. Personnel on the album were: Jerry Reed (lead vocals, guitar), Gordon Stoker (backing vocals), Beegie Adair (keyboards), and Bobby Thompson (banjo). Smokey and the Bandit: Music from the Motion Picture was released in August 1977 and went to #10 on the Billboard Top 200 Albums chart. The movie was an American road trip action comedy starring Burt Reynolds, Sally Field, Jackie Gleason, Jerry Reed, Paul Williams, Pat McCormick, and a 1976 Pontiac Firebird Trans Am with a 1977 front end. Jerry Reed was an American country music singer, guitarist, songwriter, and actor. He released 50 studio albums and 59 singles. He appeared in 22 television shows and motion pictures. Reed won two Country Music Association Awards and three Grammy Awards. He was a member of the Country Music Hall of Fame and the Musicians Hall of Fame. Reed died in Nashville in 2008 at the age of 71. |
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