MarkWest Energy Partners LP can't build processing and fractionation facilities fast enough in the Appalachian Basin to meet the ever-increasing levels of natural gas production in the region.
The partnership has completed seven major infrastructure projects in the last four months, with no end to that growth in sight, according to one company official.
"We have a very attractive position in the wet-gas region of Ohio, Pennsylvania and West Virginia. We honestly don't see an end to the growth. The initial production rates [IP], the estimated ultimate recoveries [EUR] are a little different in each area, but some of the wells that have come online are just barn-burners," said Scott Garner, VP of corporate development, at Hart Energy's Marcellus-Utica Midstream Conference last week.
"It's continuous, the producers are continually refining their technology and getting better and better. The EURS increase, the IPs improve, the ability to handle liquids downfall and ability to handle reservoir pressure regimes is just amazing. As they continue to revise their technologies, we actually envision that there will be continued growth at our facilities as additional volumes are realized."
It was in late 2002 that MarkWest was formed with the acquisition of a silo, fractionator and a number of processing plants in Kentucky and West Virginia. Ever since, Garner said, Appalachia has been of immense importance to the partnership's growth.
Since it was founded, MarkWest has spent about $9 billion on its operations. About two-thirds of that total, or $6 billion, has been spent on its operations in the Marcellus and Utica Shales since 2008, he said. In its transition from a fledgling midstream company to a top player, MarkWest has become the Appalachian Basin's largest processor and fractionator.
In the Marcellus, Garner said MarkWest is currently processing 2.2 Bcf/d of natural gas and liquids. In the Utica, it's processing 600 MMcf/d, which is expected to rise to 1 Bcf/d by the end of this year. By 2015, he said MarkWest expects to be processing between 4-5 Bcf/d overall in the region.
Last week, MarkWest said in an operational update that it had commenced operations at seven major infrastructure projects in the Northeast, including five new cryogenic processing plants totaling 1 Bcf/d of capacity and two fractionation facilities totaling 98,000 bbl/d of fractionation capacity. MarkWest has another 17 major processing and fractionation projects under construction.
Those projects are occurring at nine locations in Ohio, Pennsylvania and West Virginia. During the fourth quarter, the partnership commissioned new plants in Marshall, Wetzel and Doddridge counties in West Virginia. Two others recently began operations in Noble and Harrison counties in Ohio.
In early December, MarkWest doubled its purity ethane fractionation capacity in the Marcellus to 76,000 bbl/d with the startup of its second de-ethanization facility at its Majorsville complex in Marshall County. The partnership's Liberty Ethane Pipeline also became operational (see Shale Daily, Jan. 2). It will deliver purity ethane from the Majorsville complex to the Houston complex in Washington County, PA, where the product will have access to major ethane takeaway projects, including Mariner East, which is scheduled to come online this year (see Shale Daily, Dec. 5, 2013).
Nearly every speaker at last week's conference noted that natural gas and liquids production in the Marcellus and Utica is poised to transform the region into a low-cost supplier. Bradley Olsen, managing director of midstream research at Tudor, Pickering, Holt & Co., said that transformation should happen by 2020. In the meantime, though, he said Appalachian basis prices would be volatile until enough pipelines can be built to balance the abundant supply in the Northeast.
As natural gas liquids rise in the region, Olsen anticipates that volumes shipped to Southeast Pennsylvania refineries near Philadelphia on Mariner East by MarkWest will double over time, because those shipments will be cheaper to send cross-state for overseas export than cross-country to the Gulf Coast.
Manuj Nikhanj, a financial analyst at ITG who spoke at the conference, said condensate production is also rising steadily in a five-county area in eastern Ohio where MarkWest's midstream system is located.
"Condensate is the wild card; it's a weird animal," Garner said. "We've spent a lot of time looking at our stabilizers and that defined range, based on a consensus of what refineries have told us they can handle. Each refinery, because it has its own set of processes, is going to value that condensate differently.
"What it translates into for us at the end of the day is there's probably going to be multiple towers dedicated to specific specifications where we could meet individual market requirements. You could run a tower for the entire month dedicated to meet certain processing specifications. We're finding, just like we use the word optionality for rail and pipelines, that what exactly we produce is going to be very, very important."
Aside from the varied processing demands it faces, inclement weather, the region's hilly terrain and aging railroads, combined with the pace at which MarkWest has had to build its facilities, has created challenges for the partnership.
"I worked in the Rockies for 13 years and was involved with a number of pipeline projects and plants, and I always thought that was the most challenging construction in the entire country," Garner said. "I have to say since we've been back here since 2008, nothing rivals building or developing processing plants and pipelines in the Northeast -- no area holds a candle to this area in terms of the challenges."
That won't stop MarkWest, though. Jack Lafield, CEO of Caiman Energy and Blue Racer Midstream said his company expects wet gas production in the Utica and Marcellus to ramp up to more than 9 Bcf/d combined by 2018. Garner said figures like those demonstrate what kind of growth MarkWest will undertake at its current facilities and new ones in the future.