Lack of NGL Takeaway Capacity and the Marcellus

DARREN HOROWITZ, Raymond James (10/25/2010)
"The Marcellus shale is one the largest continuous shale plays ever discovered. Because of its size, proximity to high gas demand areas, and the fact that it is a relatively uniform formation, this prolific shale provides unique opportunities for drillers. However, producers will need to find ways to dispose of the ethane that is processed from Marcellus gas or be faced with production shut ins. To make matters worse, there is essentially no end-user demand for ethane in the Northeast and, at the present time, there is a lack of infrastructure in the Marcellus shale to export ethane to areas where demand does exist. While there are several projects in the works to expand NGL takeaway capacity out of the Marcellus, whether or not there will be sufficient capacity to handle growing Marcellus ethane supplies depends largely on 1.) if and when these projects are completed; and 2) the pace at which wet gas production in the Marcellus ramps.

With current ethane demand tracking approximately 965 Mbpd (highest level in two decades), outpacing ethane extraction from gas processing (i.e., supply) by over 100 Mbpd, the value of NGLs is at a recent high. In an effort to keep pace with Marcellus production and monetize those liquids, an estimated 1.2-1.5 Bcf/d of new processing capacity is expected to be built, targeting the removal of the heavier liquids (i.e., propane+). All in, industry sources suggest that approximately 55-65 Mbpd of propane+ could be extracted. However, there is no current solution for the recovery of ethane, the largest and most valuable component of the NGL barrel (as it relates to ethylene margins). In the near term, producers are blending wet gas with dry gas to meet pipeline specifications and opting to leave lighter NGLs (ethane) in the gas stream. However, this is only a temporary fix. Eventually, blending thresholds will be reached and ethane supply from the Marcellus could approach 80–90 Mbpd over the next five years. Given limited end-user demand for ethane in the Northeast (i.e., most of the nation's petrochemical plants are located along the Gulf Coast), producers must find a way to transport growing ethane supplies, or be forced to curtail or shut in gas production."

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