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Marcus Hook A Better Bet For Northeast Ethane Exports, Sunoco Exec Says

Sunoco Logistics Partners LP said that as its former crude oil refinery in Marcus Hook, PA, along the Delaware River south of Philadelphia, transforms into a major East Coast export terminal, it could soon rival similar facilities along the Gulf Coast and provide a number of advantages to Northeast oil and gas producers.

"We believe at Sunoco that Marcus Hook provides a succinct advantage in terms of costs savings for our producers and customers because of its location in relation to Western Europe," Jeff Davis, director of business development, told a crowd gathered on Tuesday for this year's Utica & Marcellus NGL & Natural Gas Markets & Takeaway Congress in Columbus, OH. "As we continue to grow fractionation and infrastructure assets in the Northeast, in addition to the improvements to the Panama Canal, in our analysis we believe that the facility is on par with the Gulf Coast."

Sunoco operates 2,500 miles of refined product and natural gas liquids (NGL) pipelines in the Northeast, Midwest and along the Gulf Coast in addition to 5,400 miles of crude oil pipelines and 42 product terminals. Much of its business in recent years has been focused on "retooling its assets," as Davis put it, to better handle the growing NGL volumes from onshore basins across the country, particularly in the Northeast.

"With these shale plays, it has kind of found us in a situation where we're building the boat out in the middle of the ocean," Davis said. "If you look at the growth in these shale plays, the ethane solution has been an interesting thing to watch. We first thought that blending was going to be the option that would allow all this to continue, but with the onslaught of the ethane volumes we've seen, we quickly began to realize that that was going to be very short-lived."

The notion of blending in what has become the nearly 15 Bcf/d goliath that is the Marcellus seems all but a distant and laughable memory. Nowhere was that sentiment on better display than at Tuesday's NGL conference. Much of the early morning sessions focused on ethane solutions, with many regional executives making a case that it should either stay in the Northeast to serve as a building block for plastics, or be shipped to points on the East Coast or into Canada rather than south toward the Gulf Coast.

For its part, Sunoco is helping to fulfill some of those desires. In addition to the storage and other infrastructure improvements it's busy making at the 800 acre site in Marcus Hook, the company has been engaged in a strategy to move ethane, propane and butane from a growing number of wells in Ohio and Pennsylvania. Its 70,000 b/d Mariner East 1 project, which will move NGLs from southwest Pennsylvania to Marcus Hook for export is nearing full operation (see Shale Daily,Sept. 9, 2013). Mariner East 2, meanwhile, is expected to be in-service in 2016 (see Shale Daily,Dec. 5, 2013). It would reach back and help move NGLs from Ohio to Marcus Hook.

Davis said Mariner East 1 has secured 40,000 b/d of firm commitments from shippers, while Mariner East 2 has secured 18,000 b/d of firm commitments. Mariner West, 50,000 b/d of capacity, is currently taking ethane from the Marcellus to petrochemical markets in Ontario, Canada.

Davis said there's less congestion on the Delaware River in comparison to the Houston Ship Channel, making it faster and less costly for ships to load product at Marcus Hook. He added that weather in a protected harbor at Marcus Hook, PA, far up the Delaware River and just south of Philadelphia, does not pose some of the operational perils and potential delays that the Gulf Coast's annual hurricanes often create for companies there. He was also quick to point out that the East Coast is about three days closer by ship to Western Europe.

Even if Europe's petrochemical industry is becoming less competitive due to the high prices of ethane there, U.S. supply is expected to continue increasing. Nearly half of all U.S. ethane growth could come from the Utica and Marcellus Shale plays by 2020, said EIA Operations Analyst Michael Scott. Davis added that it will need a place to go in Europe and beyond.

Although developing nations outside of Europe, where gross domestic product is expected to grow at a faster rate than most western countries in the coming decades, will likely demand the most ethane, Scott said he wouldn't dismiss Europe as a viable market for the Northeast's ethane.

Cheaper ethane exports to Europe are expected to begin from Marcus Hook in 2015, Scott said, because of deals and contracts secured years ago by the likes of foreign chemical companies such as Ineos Group, which realized early that it needed to take advantage of low ethane prices in the Appalachian Basin to secure a future for the European industry.

"Over in Europe they have very high ethane prices. It's costing them thousands of dollars a ton to make ethylene; they can't compete very well and they're closing plants," Scott said. "Ineos, seeing how much ethane is coming out of the Marcellus says, 'we're going to take advantage of this' and so the deals that went into getting ethane over to Europe will begin happening at the end of next year. They'll be able to produce ethylene at half the price they're producing it at now. That's a smart move. You have an industry in trouble and you have some major investors who put these deals together years ago."

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