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MarkWest: Appalachian Ethane "Solved" for Near Term

As Royal Dutch Shell plc gets closer to announcing a "world class" ethane cracker for the Appalachian Basin, the leading processor of ethane in the region is standing behind its three projects for Marcellus and Utica shales.

"We believe that these projects adequately address the issue of ethane takeaway capacity for the northeast markets," MarkWest Energy Partners LP CEO Frank Semple said during a quarterly earnings conference call Wednesday.

Following a chicken-and-egg deadlock, the region in the past year saw the first steps toward providing a market for ethane from liquids-rich shales. First, MarkWest sanctioned Project Mariner West, connecting the region to a petrochemical hub in Sarnia, ON (see Shale Daily, Sept. 8, 2011). Then, Enterprise Products Partners LP decided to move forward on its 1,230-mile Appalachia to Texas (Atex Express) pipeline supported in part by MarkWest processing facilities (see Shale Daily, Jan. 5). Finally, MarkWest continues to seek producer support for a Project Mariner East that would create a pipeline to barge system allowing producers to sell into the Gulf Coast market and potential overseas (see Shale Daily, Nov. 11, 2011).

"We've solved, at least for the near term, the ethane issue," Semple said.

The two sanctioned projects -- Mariner West and Atex -- would initially move 175,000 b/d of ethane from the region by early 2014. MarkWest is building three de-ethanization facilities to support those projects that it said would bring its production capacity to 115,000 b/d by 2014, but during the call Semple said the company expects to be able to produce as much as 155,000 b/d of ethane by late 2014 (see Shale Daily, Feb. 2).

The capacity to move ethane from the region could easily increase, though. The Atex pipeline will ultimately be able to move up to 190,000 b/d. And Project Mariner East could add another 50,000 b/d of demand in the region.

"There continues to be a lot of interest" in Mariner East, primarily out of the Gulf Coast market, but also because of recent oil refinery closures on the East Coast and because of the possibility of exports, according to Semple.

Although still bullish on ethane, Semple said MarkWest is looking at the using the project to ship other natural gas liquids, something partner Sunoco Logistics Partners LP also recently suggested (see Shale Daily, Feb. 1). MarkWest hopes to make an announcement about Project Mariner East this year, Semple said.

Asked about the proposed 60,000 b/d Shell cracker, Semple said, "It's a real serious project and would just add to the development of the petrochemical complexes that would be advantaged by the low cost of ethane coming from these shale plays." But, he said, "with the crackers that have been announced and that we believe are going to be moving forward, the [Mont] Belvieu market is the right place to be for Marcellus and Utica ethane."

The major midstream operator earned $119.9 million in 2011 (75 cents/share), up from $34.2 million in 2010, largely because of increased revenues out of its Southwest business unit. But despite increased revenues year over year, the company reported a loss of $74 million (87 cents/share) for the fourth quarter, down from a loss of $54 million (76 cents/share) in fourth quarter of 2010, because of losses related to hedging and debt redemption.

MarkWest plans to spend between $900 million and $1.3 billion on capital projects this year, with around 80% going toward its projects in the northeast and the remainder set aside for the southwest. The large range is partially due to the uncertainty of its funding requirements this year through its new Utica joint venture.

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