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MarkWest: Utica More Competitive Than Marcellus

The early days of the Utica Shale are proving to be far more competitive than the early days of its cousin, the Marcellus Shale, the head of a major midstream player told NGI's Shale Daily.

When Marcellus activity began in earnest last decade, Range Resources Corp. owned an advantageous acreage position in the southwestern Pennsylvania, according to MarkWest Energy Partners LP CEO Frank Semple. "They really had the best acreage position in the Marcellus. They were the leader. Here you have many more producers that are interested in the Utica play. And frankly, it's really pretty competitive over here from a producer standpoint," Semple said Tuesday while in Cadiz, OH to announce plans for its first gas processing plant in the Utica. "It's an order of magnitude more competitive for the midstream industry in the Utica versus the Marcellus."

With bigger producers eying the oily Utica and more midstream players entering the market, "We learned from that situation in the Marcellus and we decided to step out early in the Utica and make some commitments so the producers could start committing to their drilling programs," he said.

In this month alone, other midstream players stepping into Utica have included DCP Midstream LLC, Spectra Energy Corp.'s Renaissance Gas Transmission project, NiSource Gas Transmission and Storage's wet and dry gas gathering system (see Shale Daily, March 8a; March 5; March 1).

In a few short years MarkWest has built a network of facilities in Appalachia with 325 MMcf/d of gathering capacity, 625 MMcf/d of processing capacity and 60,000 b/d of fractionation capacity in Houston, PA and Majorsville, WV, to serve customers including Chesapeake Energy Corp., Consol Energy Corp. and EQT Corp. MarkWest is currently building 520 MMcf/d of additional processing capacity and a 75,000 de-ethanization facility in Mobley and Sherwood, WV.

Now, MarkWest is laying the groundwork for a similar network of facilities in the Ohio Utica, a promising play with only around 50 wells drilled to date. Through MarkWest Utica, a joint venture formed with its former Marcellus partner The Energy and Minerals Group, the company plans to build two processing complexes in Harrison and Monroe counties in eastern Ohio and a fractionation, storage and marketing complex in Harrison County (see Shale Daily, Jan. 3).

The 200 MMcf/d gas processing plant announced Tuesday in Cadiz is the first step in that process and now MarkWest currently working on siting a 100,000 b/d fractionation in the region.

While acknowledging that his company is making a large investment in a young play, Semple noted that "the good news is the analysts and the producers are putting a lot more information out in their public presentations about the productivities of the various counties in the play."

Noting that MarkWest recently signed a letter of intent to manage products for Gulfport Energy Corp. (see Shale Daily, March 8b), Semple added, "We know enough about the drilling results and the analysis of the producers to feel comfortable that this is the right place for a gas plant... So we knew a lot about what the opportunities would look like and what the risk-reward would look like."

It helps that MarkWest is already established in the Marcellus, Semple said.

With expanded natural gas liquids (NGL) production expected in Appalachia, MarkWest would need to expand its capacity regardless of the Utica. Now, it plans to use Marcellus liquids to baseload its proposed Utica fractionator and connect the two facilities by a new liquids pipeline.

It also helps that producers are bullish, Semple said. "This is why it's been so important to get in front of them, to step out and commit to some plants and fractionation facilities... In a very economic productive play like the Marcellus, the producers can ramp up very quickly. And the goal is to make sure they don't have any shut in gas or be bottlenecked on the liquid side," he said.

The competition in the region will not only be for business, but for supply. MarkWest is an early entrant into the ethane market in the region, sanctioning the Mariner West project to move Marcellus ethane to Sarnia, ON, and serving as the fractionator for the Enterprise Pipeline Partners LP Appalachia to Texas Express pipeline from the region to the Gulf Coast markets.

Against that backdrop, Royal Dutch Shell plc considering a "world-scale" ethane cracker in the tri-state region capable of handling between 60,000-80,000 b/d (see Shale Daily, Sept. 7, 2011). "If a world-class cracker facility is built up here in the tri-state area then its going to need feedstock," Semple said. "Shell owns a lot of reserves, so they have the ability to ramp up their own capabilities, but that cracker is going to be competing with the Gulf Coast for the purity ethane."

But Semple isn't worried about a local market for ethane emerging.

"It's great for us. We don't own the ethane. We just process and fractionate the gas and the NGLs. So if we had another demand for ethane up here, like a large scale cracker, 60,000-70,000 b/d, that just means more demand for our producer customers who actually own the ethane," he said.

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