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Large-Scale Gas Processing Project Proposed for Marcellus

After hinting for months that going big was the only way to accommodate excess ethane supplies in the Marcellus Shale, Williams on Tuesday proposed to build a large-scale natural gas processing and ethane project that would traverse the rich gas/dry gas divide in Pennsylvania.

The announcement came during a day-long company conference in which CEO Alan Armstrong touted the "new" Williams, "focused on being the provider of large-scale infrastructure...to maximize the opportunities" created by abundant domestic natural gas.

"It's going to take a lot of infrastructure and that would allow us to arbitrage between natural gas and crude oil products," Armstrong told analysts. Smaller projects won't cut it and "it's going to demand a lot of consolidation in the basins. There's a lot of pressure to build" and there will be more in the near term.

"Demand for gas and for gas products infrastructure is rising," said Armstrong. "By the middle of the decade as more demand comes from power generators...we will really start to run out of options about how to generate power as old coal units are shut down."

Williams "also continues to believe that demand for plastics, not necessarily in the United States but around the world, grows...The ability of the United States to export plastics is really enhanced" with new infrastructure.

In its first large-scale infrastructure announcement, the company unveiled a two-phase gas processing and ethane project for the Marcellus Shale.

"The shale gas revolution in the United States, coupled with continued strong crude oil prices, has given U.S.-based ethylene manufacturing a tremendous cost advantage over many other supply regions," said Rory Miller, vice president of the Midstream operations. "The results are a revitalized North American petrochemical business and a U.S. ethylene market short of supply."

The proposed Confluence Pipeline, designed as a 36-inch diameter rich gas gathering trunkline with a series of hydrocarbon dew point processing plants, basically would run vertically along a designated demarcation line that "separates" the rich gas in the western part of Pennsylvania with the dry gas production to the east. Confluence would offer blending and then tie into long-haul transmission lines.

Williams' Transcontinental Gas Pipe Line (Transco), which traverses the Marcellus Shale, has several expansion projects on the drawing board including the Atlantic Access project, which has a forecasted in-service date of 2014. Confluence, which is to have 1.1 Bcf/d of capacity, would tie into Atlantic Access in southwestern Pennsylvania.

Atlantic Access is still a proposal and not contracted, Armstrong said earlier this month (see Daily GPI, Sept. 12).

Confluence already has drawn "good interest from the producer community," Miller. "We're in a situation where things have turned upside down there. I also think it will add value to our Atlantic Access line as local volumes exceed demand and we need to move volumes down the Eastern Seaboard."

Once Confluence is on track, Williams is proposing to build a centralized cryogenic processing plant to strip out ethane, which then could either go into a long-haul pipeline to the Gulf Coast or Canada, or to provide feedstock for cracker facilities, Miller explained.

"This is our solution," he said. "It makes a lot of sense to have a large-scale answer. It's a lot better than what's going on today...Blending is happening right now, but it's on waiver and status quo is on an ad hoc basis. That is limited and over an uncertain time period, good until 2013. You end up with a lot of stranded gas with drilling waiting on a sustainable solution. Compare that to a large-scale blending solution."

The cryogenic facility could be ready in 2016, said Miller. "Ethane build stays ahead of solutions" in the Marcellus, he said. "We think as some projects come on, that will take off some of the pressure. But the key is that without a large-scale solution, you end up with stranded gas and you can't take advantage of blending capacity."

Williams also announced Tuesday that it will spend up to $400 million to expand its Geismar olefins production facility near Baton Rouge, LA (see related story). The light-end natural gas liquids (NGL) cracker has current volumes of 37,000 b/d of ethane and 3,000 b/d of propane.

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