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MarkWest, Kinder Mount Challenge to Bluegrass NGL Pipeline

Kinder Morgan Energy Partners LP and MarkWest Utica EMG LLC (MarkWest Utica) are putting up a $2 billion y-grade natural gas liquids (NGL) processing and transportation combo project that competes with the Bluegrass Pipeline, which has been proposed by Boardwalk Pipeline Partners LP and Williams.

The companies have formed a midstream joint venture (JV) to pursue the project, which is really three: gas processing to serve the Marcellus and Utica, a y-grade NGL pipeline to the Gulf Coast, and then fractionation capacity, either developed by the JV or other parties, on the Gulf Coast. MarkWest Utica is a joint venture of MarkWest Energy Partners LP and The Energy and Minerals Group (EMG).

Earlier this year, Boardwalk and Williams announced their partnership to develop the Bluegrass Pipeline, which would carry 200,000 b/d of mixed NGLs from Ohio, West Virginia and Pennsylvania to the Gulf Coast, with the potential to expand to 400,000 b/d (see Shale DailyApril 30March 7).

"It absolutely competes with Bluegrass," MarkWest CEO Frank Semple said during a conference call Thursday. "If you look at the volume projections out of the Utica and the Marcellus, and clearly there's a lot of variability in those forecasts, but over the course of the next five years you would expect that if there is a need for transporting the C2+ y-grade to the Gulf Coast, there's probably only enough volume to support one of those two projects."

Separately, Enterprise Products Partners LP has previously proposed the Appalachia-to-Texas (Atex Express) pipeline to carry ethane from the MarkWest Liberty Midstream & Resources LLC fractionation, processing and storage complex in Houston, PA, to Enterprise's natural gas liquids storage complex in Mont Belvieu, TX. The pipeline is expected to come online in the first quarter of 2014 (see Shale Daily,Jan. 5).

"The Atex project...I don't really see this as being a major competitor to that," Semple said. "The timing of that is a little different than the in-service date for these y-grade projects that have been announced. I believe, at least in the near term, that there really will be only one y-grade pipeline project to the Gulf Coast developed out of the Northeast."

The first component of the Kinder Morgan-MarkWest plan consists of a 400 MMcf/d cryogenic processing complex in Tuscarawas County, OH, utilizing an existing, 220-acre site that Kinder Morgan has under option. The second component is development of an initial, 200,000 b/d, C2+ NGL pipeline to originate at the planned JV processing facilities in Ohio and transport NGLs to Gulf Coast fractionation facilities.

MarkWest Utica would anchor the JV's first of two planned 200 MMcf/d cryogenic processing plants to be constructed on Kinder Morgan's site. The initial 200 MMcf/d plant could be in service by the fourth quarter of 2014 with the second in-service shortly thereafter, subject to timing of customer commitments. The site is expandable and could accommodate more than 1 Bcf/d of processing capacity.

"The JV processing complex expands our footprint into northern Ohio and complements our existing full-service midstream infrastructure in Ohio, West Virginia and Pennsylvania," Semple said.

MarkWest Utica EMG would deliver rich-gas to the processing complex through an extension of its existing rich-gas gathering system in Harrison, Belmont, Guernsey, Noble and Monroe counties in Ohio. The complex would provide MarkWest Utica EMG producer customers with additional residue outlets into the Tennessee Gas Pipeline and Dominion Transmission pipeline systems.

The complex would also serve new customers in Carroll, Columbiana, Mahoning and Trumbull counties in northern Ohio and provide gas processing, NGL transportation and fractionation and residue gas outlets.

To deliver the northern Utica gas to the processing complex, Kinder Morgan has obtained regulatory approval to convert a portion of an existing 26-inch Tennessee Gas Pipeline Co. LLC pipeline to rich-gas gathering service. The pipeline could begin receiving rich-gas by the fourth quarter of 2014.

The JV would construct a new pipeline to deliver NGLs produced at the processing complex into MarkWest and MarkWest Utica EMG's NGL gathering network for short-term and long-term fractionation at its Ohio and Pennsylvania fractionation and marketing complexes. The JV would own the processing complex on a 50-50 basis and MarkWest Utica EMG and would operate the facilities.

The NGL pipeline project from the tailgate of the processing complex to Gulf Coast fractionation facilities would include the conversion of more than 900 miles of Kinder Morgan's 24- and 26-inch diameter Tennessee Gas Pipeline system currently in natural gas service from Tuscarawas County to Natchitoches, LA. It also would entail construction of 200 miles of pipeline from Natchitoches to Mont Belvieu, TX, and/or south Louisiana. Kinder Morgan and MarkWest Utica EMG are evaluating constructing fractionation facilities, as well as utilizing third-party fractionation throughout the Gulf Coast.

The proposed NGL pipeline would access MarkWest and MarkWest Utica EMG's NGL pipeline network, which extends throughout the rich-gas areas of the Marcellus and southern Utica to deliver NGLs to the new pipeline.

"The planned joint venture y-grade pipeline will be by far the most efficient project for the Marcellus and Utica producers to access the Gulf Coast NGL markets and is another critical step in support of our long-term objective of providing our producer customers with multiple market options and maximum value for their natural gas and natural gas liquid production," Semple said.

During the conference call, Semple estimated that the processing and pipeline projects would cost north of $2 billion. He said that the projects are going to be marketed to prospective producer customers together, but depending upon market interest, they each could stand alone. Semple said Gulf Coast fractionation could be developed by the JV partners or by other parties. But if the y-grade pipeline from the Northeast to the Gulf Coast comes to fruition, additional fractionation will be needed on the Gulf Coast, he said.

By converting existing pipeline assets and utilizing MarkWest and MarkWest Utica EMG's existing NGL network, the JV parties said they believe the NGL pipeline is best positioned to provide the most cost-effective y-grade outlet from the Utica and Marcellus shale plays to the Gulf Coast area markets. The NGL pipeline would be expandable to 400,000 b/d with the addition of pump stations.

"The combination of Kinder Morgan's strategically located and existing pipeline assets that traverse through the heart of the Utica and Marcellus shale plays, along with MarkWest's existing and significant midstream footprint throughout the Utica and Marcellus shale plays, should provide significant growth opportunities for the JV," said Kinder Morgan CEO Richard Kinder.

Subject to sufficient shipper commitments, permitting and all related regulatory approvals, a fourth quarter 2015 in-service date for the pipeline is anticipated. Kinder Morgan would own at least 75% of the pipeline and be the operator, and MarkWest Utica EMG would have the option to invest up to 25%.

 The projects join the growing list of new infrastructure proposals aimed at alleviating capacity bottlenecks that are plaguing the Marcellus and Utica shales where production is continuing to increase.

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