Crestwood Midstream Partners LP has signed a memorandum of understanding with Mountaineer Keystone LLC to build a 42-mile natural gas gathering system in northeast West Virginia, a project that would for the first time open the Marcellus Shale to the Houston-based midstream partnership.

The 16-inch diameter Tygart Valley Pipeline, which will serve Mountaineer's Marcellus development program, would interconnect with Columbia Gas Transmission's WB Pipeline in Randolph County, WV, and provide Mountaineer and other producers access to markets in the Washington, DC, and Baltimore areas. The project is expected to cost about $70 million and is scheduled to be completed by the fourth quarter of 2012.

"This project is an excellent entry point for Crestwood into the Marcellus Shale, which is expected to become the industry's largest shale producing region over the next few years," said Robert G. Phillips, CEO of Crestwood's general partner. Crestwood believes the project "will be well received by other producers in the area that have expressed the need for infrastructure to support their planned Marcellus development programs," he said.

The Tygart Valley Pipeline project would have total capacity of approximately 200 MMcf/d, which could be expanded to approximately 300 MMcf/d with compression. Mountaineer, a First Reserve Corp. portfolio company, expects to reserve firm capacity of 115 MMcf/d under a long-term, fixed-fee gathering agreement. Crestwood is marketing the remaining firm capacity to area producers that have been accumulating Marcellus Shale leases but have been slow to begin drilling and development due to a lack of pipeline infrastructure in the area, Phillips said.

Mountaineer expects to begin a horizontal drilling program in Barbour, Preston and Taylor counties in West Virginia in mid-2012.

Crestwood, which is also a First Reserve portfolio company, was created from the acquisition of Quicksilver Gas Services for about $700 million last year (see Shale Daily, Dec. 8). It initially focused only on the Barnett Shale but subsequently spread its activities across four other shale plays: the Fayetteville Shale, Granite Wash, Avalon Shale and Haynesville/Bossier Shale, where it operates 11 different pipeline systems.