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Utica Shale Could Strain Appalachian Liquids Infrastructure

The Utica Shale could double or triple liquids production in the Appalachian Basin, increasing the infrastructure challenges in the region, a midstream player told an audience in Pittsburgh on Wednesday.

"Clearly it may accelerate the need for additional ethane infrastructure," Art Cantrell, vice president of business development for Caiman Energy said at the Marcellus NGL & Shale Gas Infrastructure Summit.

While Caiman previously believed the liquids-rich shales in southwestern Pennsylvania and the West Virginia panhandle could be managed through blending products in existing pipelines, the company now believes that a major transportation project might be warranted in the years to come, Cantrell said.

"It certainly adds a potential impetus for a long-line ethane solution. Until now it's been, at least in our view, a difficult challenge to justify the economics of such a major project," Cantrell said.

The closet ethane market to the Appalachian region is Canada, and companies are considering numerous plans to connect the region to Canada, the Atlantic seaboard and the Gulf Coast (see Shale Daily, July 18).

Caiman operates a gathering system in the West Virginia panhandle that is anchored to Texas Eastern Transmission Co. (TETCO) originating from the Gulf of Mexico. While Cantrell noted that TETCO did not historically aggregate supplies from Appalachia, it is increasingly handling that function in the region.

That includes both natural gas and associated liquids.

TETCO currently allows shippers to blend ethane into their supply, up to 12%. Caiman is able to take advantage of a special waiver area that allows it to blend up to 17% of its supply and with TETCoOmoving more than 4 Bcf/d, Cantrell said that there is "clearly ample room" for the ethane in the region right now.

"The question is long term. What are your options?" Cantrell said.

While the composition of the Marcellus is highly variable even within its regions, Caiman estimates the formation in southwestern Pennsylvania and northern West Virginia is between 8% and 17% ethane, but Cantrell said the company doesn't have enough information yet to make a similar estimate about the Utica.

The closet ethane market, in Sarnia, ON, handles only 10% of the North American supply, and the rest ends up in the Gulf Coast, Cantrell said. "To get a major line to that area (the Gulf Coast) certainly may be a long-term objective, but clearly it is not an initial next step project, in our view," he said.

Those projects include the Marcellus Ethane Pipeline System (MEPS) to Baton Rouge, LA, proposed by El Paso Midstream Group Inc. and Spectra Energy Corp.; a Kinder Morgan Energy Partners pipeline to Sarnia; and a Buckeye Partners LP pipeline to Sarnia (see Shale Daily, March 28; Oct. 26, 2010).

In an effort to ease its dependance on blending, Caiman recently signed a memorandum of understanding to sell up to 20,000 b/d of ethane to NOVA Chemical Corp. at its plant in Sarnia. The supplies would be shipped through the Sunoco Mariner West project, a proposed 50,000 b/d pipeline starting around 2013.

Sunoco Logistics Partners L.P. and MarkWest Liberty Midstream & Resources, LLC, the companies behind Mariner West, are also planning a Mariner East pipeline to transport 50,000 b/d of ethane to the Gulf Coast through a marine facility on the Atlantic seaboard by 2012 (see Shale Daily, Aug. 2).

MarkWest Energy continues to expand its liquids infrastructure in the region (see Shale Daily, March 24).

Since 2008 the company has been building out its MarkWest Liberty complex, a partnership with the Energy and Mineral Group, and expects to have 600 MMcf/d of cryogenic processing capacity in the region by the end of the year with additional plants planned for next year, a $900 million capital project.

That pace of development is being driven by the economics of liquids, according to Scott Garner, vice president of corporate development and joint venture management for Market Energy Partners.

"Basically, you could give the gas away in a number of these plays and still have an economic opportunity," Garner said about wet plays like the Bakken, Eagle Ford, Granite Wash and Marcellus.

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