There is, it seems, a downside to the tremendous natural gas production results in the Marcellus Shale, according to energy consultant Bentek Energy LLC.
Without a viable offtake for ethane, the shale producers may be forced to curtail gas production, Bentek said in a study issued late Thursday. The study addresses how ethane is impacting gas production and examines several ongoing projects that are designed to address the issue. Bentek's researchers also assess the viability of each of the options now on the table.
"In most natural gas producing regions, ethane is a highly valued byproduct of natural gas production, sold as an important feedstock for the petrochemical industry," noted the Evergreen, CO-based consultant. "But in the rapidly growing Marcellus producing region of the Appalachian basin, ethane is viewed by some natural gas producers as a contaminant that could threaten development plans in the area."
No one doubts the rapid build-up of gas output from the Northeastern shale play. On Thursday the Pennsylvania Department of Environmental Protection reported that between July 1, 2009 and June 30, 2010 the state's 632 wells in the Marcellus play produced 180 Bcf of natural gas (see Daily GPI, Sept. 10).
"In Pennsylvania alone, receipts into pipeline systems have increased four-fold from 0.3 Bcf/d in early 2009 to 1.2 Bcf/d in August 2010," Bentek estimated. "Over the next five years Marcellus production is expected to reach at least 5 Bcf/d, with some projections exceeding 10 Bcf/d."
However, as the shale play's volumes ramp up across the region, "a serious problem is emerging for producers of high-BTU, or rich gas," noted the consultant. Before the high-BTU gas is delivered to pipes to transport to market, natural gas liquids (NGL) have to be extracted from the gas, and ethane is "by far the largest by volume" of the hydrocarbons that make up NGL in the region.
"In most gas producing regions, high BTU gas and abundant NGLs are good news," said Bentek Managing Director E. Russell (Rusty) Braziel. "NGLs are generally priced significantly higher than natural gas on a BTU equivalent basis, and improve the producer's profitability at the wellhead. But in the Marcellus, NGLs are a problem for two reasons.
"First, today there is not enough gas-processing infrastructure to extract all the NGLs from gas in the high-BTU gas regions of the Marcellus. This problem is being addressed by the construction of a number of new gas plants. But these plants are creating the second problem -- increasing volumes of ethane in the Marcellus region. There are essentially no markets for ethane in the Northeast U.S."
Some components of the NGL stream are marketed locally, such as propane, which is sold into the home heating market. The "heavies" are butane and natural gasoline, which could be destined for Northeast refinery markets. "In other parts of the country, almost all ethane moves by pipeline into petrochemical markets, predominantly along the Gulf Coast," Bentek noted. "There are no ethane pipelines or petrochemical plants that use ethane in the Northeast region."
In the Bentek study, "A Home for Marcellus Ethane," consultants examine projects announced to date to address this issue, which include a review of some of the separate proposals. There are a lot of proposals on the table.
In April Kinder Morgan Energy Partners (KMP) said it would modify and expand the existing Cochin Pipeline system to transport NGLs from the Marcellus Shale to fractionation plants and chemical markets near Sarnia, ON, and Chicago. Enbridge Inc. also this year launched plans for an NGL pipeline from the Marcellus in southern Pennsylvania and northern West Virginia to markets in the Midwest (see Daily GPI, March 23).
Buckeye Partners LP and Calgary-based NOVA Chemicals Corp. are exploring the potential for a mixed NGL pipeline from the Marcellus in Pennsylvania to the refining and petrochemical complex in the Sarnia-Lambton area of Ontario (see Daily GPI, Feb. 11). MarkWest Liberty Midstream & Resources LLC also plans to expand its processing and fractionation capacity in the Marcellus (see Daily GPI, April 19).
And El Paso Midstream Group Inc. also held a nonbinding open season through Friday (Sept. 10) to solicit interest on its proposed Marcellus Ethane Pipeline System (MEPS), which would be designed to transport up to 60,000 b/d of ethane to third-party ethane pipelines and storage facilities in the Baton Rouge, LA, area (see Daily GPI, Aug. 10).
Bentek examined the proposals by KMP, Enbridge and Buckeye, which would move ethane from the Marcellus to Canada and Chicago; the proposal from MarkWest and Sunoco to move ethane by ship to the Gulf Coast; the conversion of a portion of the Tennessee natural gas pipeline by El Paso to move ethane to Baton Rouge, LA; and a Williams Cos. proposal to blend the ethane with low BTU gas in the Northeast and market the product as pipeline specification natural gas.
"Our analysis segments the ethane problem into 'discretionary' and 'must-recover' components," said Braziel. "Most of the new plants being built can leave a portion of the ethane in the natural gas without a problem. We call this volume discretionary. The real problem is the must-recover ethane -- this must come out or the gas will not meet pipeline specifications, potentially resulting in curtailments of natural gas production -- a very bad thing for Marcellus producers."
Bentek's study assessed the risks faced by each of the ethane proposals and found that one of the most important is the fractionation (frac) spread.
"Projects that involve shipping Marcellus ethane long distances to petrochemical markets are vulnerable to downward pressure on the frac spread -- the difference between natural gas and ethane prices," Bentek noted. "If ethane prices are low relative to natural gas prices, shippers will not realize enough incremental revenue to offset the cost of transporting the ethane to market.
"Another important risk to examine is that of overbuilding ethane transportation. If the capacity of a project significantly exceeds the volume of ethane than needs to be moved, project economics will suffer."
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