With the Marcellus and Utica shale ethane situation under control for the moment, propane is becoming the next natural gas liquid (NGL) to trouble producers in Appalachia.
"Propane is something that I've been growing more and more concerned about as we move forward," Kristen Holmquist, manager of natural gas liquids for Bentek Energy Inc., said at the Hart Energy Marcellus Midstream Conference and Exhibition in Pittsburgh.
With two pipelines in the works, an overseas shipping option under discussion and tentative plans for a world-scale cracker in the region, operators are no longer concerned about what to do with the ethane they produce in the liquids-rich corners of Appalachian shale. But alongside ethane are other NGLs that also have limited demand, propane chief among them.
As producers develop the liquids-rich Marcellus and Utica, Bentek expects propane production from the Northeast to increase to about 200,000 b/d by 2020. Unlike ethane, propane does have an existing market in the region -- mainly for home heating and appliances -- but because propane is more expensive than other NGLs on an energy-equivalent basis, demand will likely remain at 180,000 b/d or could even decline, she said.
With U.S. supply and demand expected to follow similar trends during that time as well, the growth of Appalachian propane will place a strain on propane storage facilities in the short term, and by the end of the decade storage will no longer be a solution; demand will have to increase, she said. The potential solutions are the same as for ethane: exports to Europe to capture higher prices overseas; a long-haul pipeline to the Gulf Coast; or a petrochemical plant in the northeast to produce propylene. "No one has proposed this, but there's going to be a lot of propane around, so that could be a potential solution," she said.
The petrochemical industry is expanding ethane capacity on the Gulf Coast but is not investing as much in propane, Holmquist said. "So pretty much regardless, we're going to see a lot of propane exported. It's not like the northeast can deliver this problem away," she said.
That's probably why MarkWest Liberty Midstream & Resources LLC and Sunoco Logistics Partners LP are increasingly discussing the propane potential of their Project Mariner East. While originally proposing to ship northeast ethane to Europe or the Gulf Coast from Philadelphia, the companies are now discussing an ethane-propane project.
Currently, the Mont Belvieu, TX, NGL complex is setting the clearing price for the country, and producers aren't able to take advantage of major price differentials between the Gulf Coast and markets in the Caribbean and South America, according to Randy Nickerson, chief commercial officer of MarkWest Energy Partners LP. By exporting out of Philadelphia, "not only does that give us an enormous outlet in the Northeast, not only are we not trapped in the Northeast and having to ship everything extra down to the Gulf Coast, but we now can take all of that upgrade and pass that back to the producers."
Other companies expressed a similar desire. Producers will push for projects that increase their options for propane, according to Rick Moncrief, executive vice president of business development for Caiman Energy. He suggested that Caiman's new owner, Williams Partners LP, might be interested in such a project, at least as a customer (see Shale Daily, March 20).
And El Paso Corp. is proposing a Utica and Marcellus Header Project to move NGLs from the region to its proposed Tuscarawas Processing and Fractionation Plant by late 2013. The project would involve shipping propane products by truck and rail to the processing plant.