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Rising Costs, Operational Issues Show Need for Appalachian NGL Storage

As Appalachian natural gas production started to boom about a decade ago, first came the pipelines and then the processing facilities. Now it’s time for underground natural gas liquids (NGL) storage, said speakers at an industry conference near Pittsburgh last week.

The upstream, midstream and downstream sectors have continued to grow, building out a more complex footprint to handle the nearly 30 Bcf of gas and the hundreds of thousands of barrels of NGLs that are produced in the region each day. Producers like to turn on their production and leave it on, while the market only wants those volumes when it needs them for heating, cooling or manufacturing.

“You need something to balance that, and that’s where storage comes in,” said Energy Storage Ventures LLC’s (ESV) David Hooker, president whose firm is developing Appalachia’s first underground NGL salt storage facility in Monroe County, OH. He addressed a crowd at the Appalachian Storage Hub Conference in Canonsburg, PA, last week.

Operational issues, regulatory snags and the transportation costs that come with a lack of liquids takeaway capacity or in-basin demand have operators in the region yearning for more options.

“One of the problems in Appalachia is that we have limited connectivity to where a number of these crackers are being built on the Gulf Coast,” said Blue Racer Midstream LLC’s Brent Breon, vice president of business development. The firm provides processing, fractionation and other midstream services to 21 customers in the basin.

Breon said the primary pathway, for ethane at least, is the Appalachia-to-Texas-Express (ATEX). “The ATEX pipeline is fairly expensive from a transportation standpoint,” he added. “If you combine the increased production of NGLs from the Permian Basin and activity in the Midcontinent, pricing will probably not get high enough at Mont Belvieu to incentivize another pipeline to be built to the Gulf Coast.”

The answer to that problem is largely seen in an NGL storage hub, which has gained much support, but made little progress. Proponents want to link up Appalachian shale formations with a network of pipelines, equipment and underground storage. The hub, supporters say, could ease supply and demand imbalances and help create more regional buyers and sellers of commodities, similar to the one that exists in Mont Belvieu, TX, which sits on a shallower salt dome used to store products.

A unit of Royal Dutch Shell plc is currently building a multi-billion dollar ethane cracker in Western Pennsylvania. Four similar facilities have been proposed for the region, including one by Thailand’s state-owned PTT Global Chemical pcl, which is thought to be close to moving forward. While those are great candidates for underground storage, Breon said, Blue Racer management believes “NGL traders and other fractionators are waiting in the wings to participate” in Northeast NGL storage as well.

In addition to the high costs of moving ethane all the way to the Gulf Coast, it isn’t cheap to rail propane and butane either. Operational issues, such as the pipeline slips that are common in Appalachia’s soggy terrain, or outages on key lines like Mariner East 1, which has been down more than 75 days this year due to regulatory issues, are engendering a more dire need for storage.

“If you assume a pipeline is 99% reliable than that’s still three or four days that you’re potentially down during the year,” Breon said. Blue Racer has to scramble to reserve rail cars when pipelines are knocked offline in the region to keep product moving. “So, we’re having these discussions with our producers and suggesting that we may need to look at storage, and underground storage is a way to be able to manage when there are potentially outages.”

ESV’s Mountaineer NGL Storage LLC is working to develop a 3.5 million bbl facility that could eventually be expanded to 10 million bbl. Other proposals by different companies have been put forward as well. But Ohio does not have regulations specifically designed for NGL storage that are overseen by one state agency. That has prolonged the process.

Mountaineer’s project was announced in 2016, with start-up pushed back to 2019. Mountaineer is working with the Ohio Department of Natural Resources, Ohio Environmental Protection Agency and the Ohio Department of Transportation to get its project permitted. While a study last year identified a variety of formations throughout the basin that are ripe for underground storage, the geology is not as conducive as it is on the Gulf Coast, which also makes the planning and design aspects of Mountaineer’s facility that much trickier. 

“When we started this, we thought it would be a reasonably easy process, you just go to each one of the agencies and get your permits,” Hooker said. “Well, we knew we were in a little bit of trouble the first meeting we went into and all three agencies were there and told us, basically, that they were going to work together and coordinate to permit the overall project.

“That puts a lot of cooks in the kitchen...It is taking longer than we expected. I think we’ve made some pretty significant progress, and I think we’ll get there.”

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