With stranded ethane in the Appalachian Basin starting to find markets, Sunoco Logistics Partners LP is looking at ways to move other natural gas liquids (NGL) from the region.
"As ethane solutions continue to develop, we're also evaluating propane and butane opportunities in this area as well," COO Mike Hennigan said during a conference call last week. "Our ability to access waterborne markets will be important in the future. We expect NGLs to be exported as Marcellus and Utica production continues to grow."
Because there isn't a market nearby, finding a place to sell ethane is a major concern of operators in the liquids-rich region of southwestern Pennsylvania, northern West Virginia and eastern Ohio, but increased production could push heavier NGLs beyond local demand.
Alongside partner MarkWest Liberty Midstream and Resources LLC, Sunoco recently sanctioned Project Mariner West, a 50,000 b/d ethane pipeline from a MarkWest plant in Houston, PA, to Sarnia, ON (see Shale Daily, Sept. 8, 2011). Anchored by a 15,000 b/d commitment from Range Resources Corp., the project is scheduled to come online in mid-2013.
Although the first of its kind in the region, Mariner West is already joined by Enterprise Product Partners LP's proposed 125,000 b/d Appalachia-to-Texas (Atex Express) ethane pipeline from southwestern Pennsylvania to the U.S. Gulf Coast (see Shale Daily, Nov. 3, 2011). The 1,230-mile pipeline is anchored by a 20,000 b/d commitment from Range and a 75,000 b/d commitment over five years from Chesapeake Energy Corp (see Shale Daily, Jan. 27).
Sunoco and MarkWest are also pursuing Project Mariner East, which would convert an existing Sunoco refined products pipeline to move 50,000 b/d of ethane from the wet gas corridor of the Marcellus and Utica shales to the Port of Philadelphia, where it could be exported to Europe.
And officials in Pennsylvania, West Virginia and Ohio want to keep as much ethane from leaving the region as they can. Shell is still deciding where to locate a proposed 60,000-80,000 b/d ethane cracker in the Marcellus region (see Shale Daily, Dec. 5, 2011). Eager to entice, West Virginia recently created a tax break for the project (see Shale Daily, Jan. 30). And Pennsylvania lawmakers are pushing legislation that would expand the tax breaks offered through Keystone Opportunity Zones to include the cracker project, but officials have been close-lipped about other potential deals.
Sunoco isn't worried. "We still think an additional project is going to be needed for ethane, but as ethane gets a little clearer, we're starting to look at how does propane and butane in the Marcellus find itself to the marketplace," Hennigan said. "Over time as that production grows, we think it's going to make a lot of sense that NGLs should get to a waterborne market."
Although the liquids component of the natural gas stream in southwestern Pennsylvania, northern West Virginia and eastern Ohio have kept companies interested in the region despite falling natural gas prices, ethane prices are starting to be impacted by oversupply as well.
Since hitting a recent high of 91 cents/gallon in November, ethane has fallen 39% to 56 cents/gallon, including a 31% drop in January alone, because of concerns about oversupply.
Analysts at Tudor, Pickering, Holt & Co. called that drop "largely temporary, in our view, but a useful indicator of how dynamic ethane markets can be and how quickly prices can move between effective price ceiling and effective price floor." A 50,000 b/d shortage in the 1 million b/d market this past year sent ethane prices to three or four times that of natural gas, they said.
Sunoco believes increased gas production in the region will mean more NGLs looking for a market, and it believes its existing pipeline to tidewater could provide a solution. "We're just bullish that someday we'll develop a project that will make that all occur," Hennigan said.
In addition to the current price advantage, Sunoco could benefit from transporting propane and butane because those heavier molecules are cheaper to process for export than ethane.