Destination unknown for northeast US NGLs
A shale gas boom is creating a surfeit of liquids. The race is on to expand NGL infrastructure and find markets for ethane and propane
A major contributor to the US shale gas boom, the prolific Marcellus/Utica play, appears still far from reaching its full potential, as demand and logistical constraints hobble natural gas liquids expansion. The region, which produces nearly 30% of total US natural gas output, has seen gas production increase to just over 27bn cubic feet a day, from only about 1.7bn cf/d in early 2010, according to the latest figures from the US Energy Information Administration.
With soaring gas production has come soaring NGL output, as much of the Marcellus/Utica play, which lies under New York, Pennsylvania, Ohio and West Virginia in the US Northeast, is wet gas. According to the US Department of Energy, regional NGL output is currently 660,000 barrels a day, up from only 20,000 b/d in 2010. Consultants Wood Mackenzie expect output to exceed 1.25m b/d by 2025. Within that total, ethane output is expected to reach 640,000 b/d by 2025, and propane 400,000 b/d.
"NGLs have become a very big part of the US production outlook," says Prachi Mehta, an NGL Analyst at Wood Mackenzie in Houston. As gas production climbed in the US Marcellus/Utica area, NGL output "became an increasingly big headache for the region". Producers, consumers and midstream companies have set about developing infrastructure to absorb the production.
Initial moves to leave ethane output in the natural gas stream, so-called "ethane rejection", were limited by the maximum permitted calorific value of US gas specifications of about 1,100 British thermal units per cubic foot; and commercially unattractive because ethane rejection undervalued ethane. Initiatives to burn ethane in power stations were curbed by limits on ethane content in fuel for large-scale gas turbines. Moves to sell ethane as petrochemicals feedstock to the chemicals industry along the US Gulf Coast or export it by rail have been limited by existing pipeline and rail tank car capacity.
In moves to ease these bottlenecks, new gas fractionating and pipeline capacity is being added to the region. The latest addition, which became operational in January, is Kinder Morgan's Utopia ethane pipeline, running from Eastern Ohio to Windsor, Ontario. The 270-mile (434km), 50,000-b/d- capacity line is expandable to "more than 75,000 b/d", according to Kinder Morgan.
In Pennsylvania, the Mariner West pipeline to Marcus Hook, which supplies export ethane and propane volumes, is expected to be joined by Mariner East II and Mariner East IIx, adding a total of 525,000 b/d of additional NGL export capacity by mid-2019. Prachi and other analysts say, however, that these pipelines could be delayed by ongoing environmental protests.
Marcellus/Utica producers' hopes for increased local NGL demand largely rest on the development of world-class ethylene plants in the region. Of four proposed projects, only one by Shell Oil Company, a unit of Royal Dutch Shell, looks set to progress. Shell expects construction to begin in 2019 on the 1.5m tonnes-a-year plant, which is expected to take 90,000 b/d of ethane when operational.
A petrochemicals venture by China Energy Investment in West Virginia may fall victim to the US administration's tit-for-tat trade skirmishes with China, analysts believe. Wood MacKenzie's Mehta says the region also requires a significant NGL storage hub and ethylene export logistics in order to fully exploit its NGL potential.
The infrastructure improvements can't come soon enough for Marcellus/Utica producers. Although asking prices for NGL sales from the region remain based on the US Gulf Coast Mount Belvieu prices, logistical costs mean that wellhead realisations are considerably lower. Improved logistics will mean improved margins.