Region looks to open the ethane bottleneck - Business, Government Legal News from throughout WV

Region looks to open the ethane bottleneck

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Shell Chemicals' March 15 announcement that it would study a western Pennsylvania site for its ethane cracker is only the most eagerly anticipated solution to the upper Ohio Valley's ethane bottleneck.

That bottleneck — no local cracker, no way to get to a distant cracker — has forced increasing amounts of valuable ethane through pipelines to residential, commercial and industrial users as if it were methane.

But while the region has awaited the Shell announcement with bated breath, much has come into place with less fanfare. 

Pipelines to carry ethane away toward markets in the Gulf of Mexico, in Canada and possibly in Europe have been in planning over the past couple of years. 

And as those plans have firmed up, midstream companies that transport and process gas have prepared to isolate ethane from the gas stream and to transport it as needed within the region. 

Creating the region-wide industrial infrastructure that will loosen the ethane bottleneck in the Marcellus and emerging Utica shales is an incremental process. 

Liquids, Liquids Everywhere

The rich-gas corridor of the Marcellus shale, in northern West Virginia and southwestern Pennsylvania, produces a prolific five to seven gallons of natural gas liquids with every thousand cubic feet, or mcf, of methane, according to James Crews, vice president of northeast development forMarkWest Energy Partners of Denver, Colo. 

The Utica shale along the eastern edge of Ohio, just adjacent to the Marcellus, is proving prolific in liquids as well. 

Those liquids, West Virginians have learned, include ethane, propane, butane, and pentanes.

The midstream companies that are processing liquids in the region — MarkWest, operating in the Marcellus region as MarkWest Liberty Midstream and Resources and in the Utica as MarkWest Utica EMG; Dominion Transmission Inc., of Richmond, Va.; Chesapeake Energy's subsidiaryChesapeake Midstream Development and its partners; and Dallas, Texas, based Caiman Energy — remove the liquids from the methane through cryogenation, then separate them through fractionation. 

The liquids enter various markets. Beyond familiar uses such as cigarette lighters for butane and home heating for propane, the liquids find uses as petrochemical feedstocks and for blending into gasoline.

But because ethane, most valuable as a raw material for plastics, has so far had no local outlet — the crackers that would turn it into the intermediate product ethylene are far away, in Canada, the Gulf of Mexico, and further, and pipelines have been proposed and begun but not yet completed — the ethane has been left in the methane, losing much of its value. 

Leaving it in, producers get only what the methane is worth, Crews said: in recent months, $3 per million British thermal units, a measure of energy content abbreviated mmBtu, and less. 

But pipeline transport to ethane markets can improve that considerably. Based on recent prices at a hub at Mont Belvieu, Texas, Crews said by way of example, even after paying $3/mmBtu to send the ethane by pipeline, the producer would have netted $6/mmBtu — double the $3 take when leaving it in.

A local cracker would offer something in between, Crews said.

For just the 17.5 million mcf of gas produced in Wetzel County in 2010 — not all Marcellus, but the vast majority of it — a difference of $3/mmBtu due to leaving ethane into the methane comes to a loss of perhaps $10 million to producers.

If losses of tens of millions of dollars and rising weren't enough to motivate a solution to the bottleneck, there's another issue.

The interstate gas pipelines have limits to the Btu content of the gas they transport. Blending ethane in raises the Btu content. An "Appalachian exception" to the usual rules is set to expire in April 2015.

Finding Markets Here or Elsewhere

So the pressure has been on.

A local cracker might or might not have come about, and in either case could not be online by April 2015. And, besides, the region's producers are expecting as much as 400,000 barrels per day, or bpd, of ethane — far more than a single cracker that might process 70,000 bpd, or even perhaps several crackers, could use. 

So, over time, deals for two pipeline solutions for the ethane have come into place.

In September 2011, MarkWest and Sunoco Logistics Partners announced that they had sufficient commitments to proceed with their Mariner West project. By constructing just 40 miles of pipeline from MarkWest's Houston, Pa. fractionation facility north to existing Sunoco pipeline, the partnership will be able to pipe ethane west to Michigan and up into Ontario, Canada. The project will have initial capacity of 50,000 barrels per day, to be operational by July 2013. 

Then, in January this year, Enterprise Products Partners announced that it had received sufficient commitment from Chesapeake and others to move forward with its 1,230-mile Appalachia-to-Texas, or ATEX Express, ethane pipeline. 

It will require the construction of 350 miles of pipeline west to Indiana, where it will connect with existing pipeline almost all the way to its destination of Mont Belvieu. The capacity will be 125,000 bpd in early 2014, expandable to 190,000 bpd. 

The long pipeline is worthwhile because the vast majority of new ethane cracking capacity under discussion is planned for the Gulf Coast. That includes new crackers announced by Chevron Phillips and by Dow Chemical, with others under study by Sasol and Braskem and expansion of existing capacity planned or proposed by several companies.

Still seeking customers is MarkWest / Sunoco's Mariner East solution, first proposed in June 2010 but not yet capitalized. Like Mariner West, Mariner East would involve a short span of pipeline north from Houston, Pa. to existing Sunoco pipeline, in this case flowing east to a Delaware River marine port. It would send an initial capacity of 50,000 bpd of ethane to Gulf Coast and European markets.

So at least 175,000 bpd of this region's ethane has a path to market within the next two years.

There was no point in creating a purified stream of ethane until markets came into place. But with transport to markets under construction and with one regional cracker under serious study and the potential for more, the ethane is to become a feedstock. It has to be isolated to petrochemical industry standards, using de-ethanizers. 

De-ethanization

It would seem natural to de-ethanize at the fractionators — after all, that's where the liquids are separated from each other — but there are reasons to do it at the earlier, cryogenation step. 

"Sometimes it's better to put de-ethanizers with the cryos and run a parallel ethane purity line and separate (lines to fractionation for propane, butane and pentanes), just because of the pressure and temperature that it takes to keep ethane in a liquid state," Crews said. "We can run the propane, butane and pentane at much lower pressures, which correlates to thinner-wall pipes."

The region's first de-ethanization capacity becomes available at the end of this year with the completion of Dominion Transmission's new Natrium fractionation facility: 36,000 bpd, according to spokesman Daniel Donovan. The company expects to have access to the ethane market by 2014, he said.

Next, in early 2013, Chesapeake Midstream Development will flip the switch on its fractionator at Harrison County, Ohio. Pete Kenworthy of Chesapeake said the company is not ready to put a number on de-ethanization capacity there. 

By the time the first outlet to ethane markets, the Mariner West pipeline, becomes available in July 2013, MarkWest plans to have de-ethanizers for 76,000 barrels per day online at Majorsville, W.Va. and Houston, Pa. The company also plans to have 38,000 bpd online in Harrison County, Ohio by late 2013, with additional capacity possible there, too. It is planning another 38,000 bpd at Majorsville by mid-2014 and yet another 38,000 bpd possible. And now that a cracker is announced, it may install an additional 20,000 bpd de-ethanization capacity at either Siloam, Ky. or Kenova.

Caiman Energy plans for 30,000 bpd de-ethanization capacity by mid-2013 at its Fort Beeler site in Marshall County plus perhaps another 20,000 bpd at its nearby Fort Wetzel facility, depending on the market.

Finally, Dominion Transmission plans to refurbish 10,000 bpd capacity at its Hastings fractionation facility in Wetzel County. Hastings previously sent ethane by pipeline to the Union Carbide plant in South Charleston, Donovan said, but that plant closed in the early 1990s.

In total, that represents a ramp-up of ethane production capacity from zero now to at least 180,000 bpd by 2014 and more than 250,000 bpd by early 2017 — possibly quite a lot more. 

Dedicated Pipeline

Pipeline has been built, and is being built, for transporting wet gas from the wellhead to cryogenation facilities that separate the liquids from the methane.

For transporting liquids from cryo to fractionation, what's known as "y-grade" pipeline is generally used. That will transport propane, butane and pentanes; ethane, as mentioned above, will be transported separately at higher pressure.

But very little dedicated pipeline is in place for moving specific liquids post-fractionation, according to West Virginia Oil and Natural Gas Association Executive Director Corky DeMarco.

"Right now, we're moving most of the other liquids by truck and by rail," DeMarco explained. 

"There are some small propane lines that connect fractionators to loading facilities where we put it on trucks and we put it on rail," he said.

MarkWest is building a purity ethane pipeline between its Majorsville and Houston facilities. 

Crews said MarkWest is proposing to Dominion and Caiman that it would extend that same ethane line all the way to Natrium so they could tie their de-ethanizers into it. 

Cabot Oil and Gas owns a currently somewhat stranded but potentially valuable ethane pipeline: the old 90-mile corridor from Dominion's Hastings complex to the Kanawha Valley. 

"Depending on where a (cracker) project goes, there could be some value to that right of way," said Cabot spokesman George Stark.

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