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Raymond James: Ethane Challenge Looms in the Marcellus

The Marcellus Shale could hold as much as 500 Tcf of natural gas, according to some. That gas is conveniently close to markets in the Midwest and Northeast; however, the natural gas liquids (NGL) associated with some Marcellus production are far from what is considered to be their ideal home, namely the U.S. Gulf Coast. And that's a problem, analysts have noted lately.

In a note Monday analysts at Raymond James & Associates Inc. pointed out that the rich gas produced from wells in western Pennsylvania, West Virginia and Ohio includes liquids that will need to be removed from the gas stream and transported to end-users.

"In an effort to keep pace with Marcellus production and monetize those [natural gas] liquids, an estimated 1.2-1.5 Bcf/d of new processing capacity is expected to be built, targeting the removal of the heavier liquids (i.e., propane+)," the Raymond James team said. "All in, industry sources suggest that approximately 55-65 Mb/d of propane+ could be extracted. However, there is no current solution for the recovery of ethane, the largest and most valuable component of the NGL barrel (as it relates to ethylene margins)."

For now producers are blending their wet gas with the dry gas stream to meet pipeline specifications, leaving ethane in the gas stream.

"However, this is only a temporary fix," Raymond James said. "Eventually, blending thresholds will be reached and ethane supply from the Marcellus could approach 80-90 Mbpd over the next five years. Given limited end-user demand for ethane in the Northeast (i.e., most of the nation's petrochemical plants are located along the Gulf Coast), producers must find a way to transport growing ethane supplies, or be forced to curtail or shut in gas production."

Raymond James isn't alone in noticing the potential for an ethane offtake challenge in the Marcellus Shale. Last month Bentek Energy LLC outlined similar findings in a report of its own (see Daily GPI, Sept. 13).

Generally, three options for Marcellus ethane are being talked about: the petrochemical center of Sarnia, ON; Midwest markets in Illinois and Iowa; and the Gulf Coast. Raymond James noted that Sarnia and the Midwest each have two ethylene plants, "reflecting limited ethane demand."

But the Gulf Coast is the largest petrochemical market in North America "with 33 steam crackers accounting for approximately 95% and 80% of U.S. and North American ethylene production capacity, respectively," Raymond James noted. The analysts noted that MarkWest Energy Partners, El Paso Energy Corp., Cumberland Plateau Pipeline Co. and Enterprise Products Partners LP all have projects that take Marcellus ethane to the Gulf Coast (see Daily GPI, Sept. 20; May 10).

"...[M]oving Marcellus ethane to the [U.S. Gulf Coast] appears to be the most viable option at this time given the Gulf Coast ethylene industry's historical track record of being able to absorb growing supplies of ethane at a relatively quick pace," the analysts said.

While ethane presents a challenge, there are markets closer to the Marcellus for other NGLs, the analysts noted. "For instance, propane can be sold in the Northeast for use in residential heating during the winter," they said. "Butane and natural gasoline can be sold in Northeastern refining markets."

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