Posted on 11/21/2013 2:46:57 PM PST by ConservativeInPA
In the Marcellus and Utica shale regions of Pennsylvania, Ohio and West Virginia, natural gas is being fracked and pumped from the ground at a prodigious rate.
While most people are familiar with natural gas and the Marcellus Shale, there's a second, quieter revolution playing out in the gas fields. And energy companies are investing billions to get a piece of it.
As it comes from the ground, natural gas isn't an homogenized, pure element. It's a mix of different compounds, more akin to a stream than anything else. Within that stream are trace elements of propane and ethane, commonly referred to as "Natural Gas Liquids" or NGLs, two other fuels of modern civilization.
As gas extraction has boomed, so too has the side production of propane and ethane, and energy transportation companies are scrambling to play catch up. In the last four years, production of Natural Gas Liquids has soared, from 50 million barrels per month to more than 70 million.
But all that fuel isn't worth squat if you can't bring it to market, which brings us to Mechancisburg and an ambitious plan to build a pipeline across the Keystone state.
An energy revolution in ... Mechanicsburg?
If you want to figure out some of what is happening in the U.S. energy economy today, Mechanicsburg is actually a pretty good place to start.
There's no drilling taking place anywhere near the small borough, but beneath the surface, Mechanicsburg is actually an interesting pivot point for the state's energy economy.
On the outskirts of town is a Sunoco Logistics tank farm, named the Tamaqua Terminal, which for decades has been used to store heating oil and diesel fuel. One of the pipelines that feeds the farm, the Mariner East I, was shut down about a year ago.
Oil and diesel fuel prices remain high. Because of the influx of natural gas from the Marcellus and Utica shale regions, gas prices have plummeted. That has left major energy users such as electric companies, manufacturing businesses and petrochemical industries scrambling to switch their energy consumption from oil to gas-based models.
At the same time, natural gas -- and its byproducts in the Natural Gas Liquids world -- are being produced so rapidly and in such massive quantities that suppliers are having a hard time keeping up with production, creating a bottleneck. Energy supply companies, including Sunoco Logistics, have been using freight trains and tractor-trailers to try keep pace.
The domestic price of Natural Gas Liquids has also dropped, as demand can't keep up with its availability. That disparity -- low prices, high production -- makes export to foreign markets attractive for energy companies.
Which brings us back to Mechanicsburg, and the idled Mariner East I pipeline.
Today, instead of pumping oil and diesel fuel west, Mariner East I is being converted to bring propane and ethane east.
Sunoco Logistics is projecting that by mid-2014 Mariner East I should be ready to pump propane from western Pennsylvania to feed Sunoco Logistics' new Marcus Hook facility on the Delaware River.
It is projected to reach its full capacity, the equivalent of 70,000 barrels of ethane and propane daily, in mid-
Like the Mariner pipeline, Marcus Hook is also an idled oil facility, and is also now being transformed to handle propane, ethane and other natural gas products. Sunoco Logistics bought the plant earlier this year from the former Sunoco Co. for $60 million, and is spending an unspecified amount of money to upgrade the facility.
In an era when most NGLs are piped to the Gulf Coast in Louisiana, Sunoco Logistics is betting big on the Hook, building capacity for what it hopes will be a strong Natural Gas Liquid market in the years to come.
"We believe a northeast NGL hub in Marcus Hook, which is capable of handling a broad array of NGL products and is located less than 300 miles from the Marcellus, will be a very attractive proposition for producers and both local and overseas consumers alike," said company CEO Mike Hennigan in a recent conference call with investors.
But Mariner East I is just the beginning for Sunoco Logistics' plans in the Susquehanna Valley.
Betting big on the spread
Earlier this fall, the first notices started arriving in Upper Allen Township.
They alerted select property owners that Sunoco Logistics would be surveying in their area, likely on their property, for a potential pipeline project. Property owners, the letter assured, would be compensated if their land was deemed a necessary right-of-way.
Details of the new pipeline, dubbed Mariner East II, are scant at this point. A Sunoco Logistics representative could only provide a partial list of local communities the pipeline might cross. Upper Allen, Lower Allen, Lower Swatara and Derry townships are on the list, as are Middletown and Highspire boroughs.
Hennigan said this month on another call with investors that Sunoco Logistics plans to take the proposal to the open market "soon," at which point it will determine whether demand for the pipeline exists.
He and his fellow company executives, however, are betting it does.
"It's our theory that most of the NGL (production) needs to export out of the market," he told investors earlier this year. "We happen to be a believer that the demand side growth will be slower than the supply side growth."
In other words, there's more money to be made outside of the continental U.S., and Sunoco Logistics, based in Philadelphia and with its new deep-water facility at Marcus Hook, is angling to capture a chunk of it.
If the demand is proven -- pipeline companies sell capacity in advance of construction -- the Mariner East II line will be finalized and its route determined.
It's hard to get good numbers on pipeline construction. Different federal agencies regulate different kinds of pipelines, but at least a dozen NGL pipelines have been approved or are under construction. In 2012 an additional 14 natural gas pipelines were also approved by the federal government.
The Mariner East projects are only a few in Sunoco Logistics' pipeline portfolio. Over the next year or so the company alone has roughly 12 projects on the books for both oil and gas, and expects to spend roughly $1.3 billion next year. To put that into perspective, for each of the last four years, 2008-2012, the company has spent at most $300 million per year in capital expenditures.
Request timed out That's a huge investment by a single company. Sunoco Logistics is only one of the companies investing in the shale regions. So called mid-stream companies, which among other things separate NGLs from natural gas, are investing between $10 and $20 billion in new separating and storage facilities in western Pennsylvania, West Virginia and Ohio.
One of the largest of those new facilities is in, appropriately enough, Houston Pa., where MarkWest has brought a massive facility, capable of processing roughly 98,000 barrels of NGL product per day.
MarkWest's Houston Complex was three separate projects of more than 38 processing projects being built by the company in the Utica and Marcellus Shale regions. Alone, MarkWest is expected to spend more than $2 billion in plants, pipes and processing capacity over the next several years.
Who gets the output of those plants, pipes and processing capacity, is to some extent, still up for grabs.
Mariner moving full-speed ahead
The Mariner East I project is on the books and is happening now. Next year Sunoco Logistics is expecting to start transporting ethane though the 8-inch line from western Pennsylvania, past Mechanicsburg, and out to Marcus Hook.
Whether the Mariner East II project goes beyond surveying and is actually built will largely depend on market forces, and whether Sunoco Logistics's bet is a winner.
Sunoco is putting its money on the idea that midstream suppliers like MarkWest will be drawn not to the traditional markets in the Gulf Coast, but rather to its export facilities on the east coast.
"So, the question comes down to: 'Do you believe that the Gulf Coast will be the best market for the NGLs?'" Hennigan told investors. "We don't. We believe that these barrels need to be exported.
"We still continue to believe that we have next best takeaway project, exports are the key and our facility in our view has the shortest transit time from the frac centers in the Marcellus, Utica.
"We are going to have world-class ship loading capability and a deep water ship channel that is not bottlenecked in any way."
This story has been updated to correct the spelling of Sunoco Logistics' CEO Mike Hennigan's name, as well as transit projections for Mariner East I.
PA Ping Request.
This will fund all of Obama’s socialist dreams.
It's hard to imagine how great the economy would be if the govt got out of the way of energy producers and obamacare was eliminated. I suppose in a strange way it's good the Rats oppose these things. They would get credit for the best economy in 30 years if they didn't oppose them.
Shhh ... be very, very quiet. It sounds like a done deal and approved by the regulators, at least state regulators. Pa state regulators have been business friendly. I just hope the Feds don't stick their noses into this.
Just a side note, this pipeline is within a mile of my house. I have no worries.
The more fools they.
The article talks about converting the pipeline from handling diesel to handling NG liquids. Other than changing pumps/sizing what else is involved in such a change. There shouldn’t be much, if any, need to change materials (gaskets/seals/etc), should there??
“This won’t happen in NY. “
Of course not. That would mean jobs for those damned Republicans upstate. The Democrats need a dependent constituency.
I am involved in these projects.
Gov Corbett has been great and the approvals are in place.
Pennsylvania will be an energy exporter for decades to come.
There is 200 years of natural gas in the Marcellus/Utica.
Liberals hate this, because it destroys the alternative energy sources in favor of capitalism. It also explains their hysteria over hydraulic fracturing perfectly.
Domestic energy, produced by American workers, earning above-average wages, threatens dependency on subsidized alternatives.
I am involved in these projects.
Gov Corbett has been great and the approvals are in place.
Pennsylvania will be an energy exporter for decades to come.
There is 200 years of natural gas in the Marcellus/Utica.
Liberals hate this, because it destroys the alternative energy sources in favor of capitalism. It also explains their hysteria over hydraulic fracturing perfectly.
Domestic energy, produced by American workers, earning above-average wages, threatens dependency on subsidized alternatives.
This will fund all of Obama’s socialist dreams.
............
No it just means all the survivalist gold fevered fears aren’t going to happen. The country is not going to go down the toilet economically this time.
The feds—and us — got lucky again.
Thanks for the info.
Try as they might liberals can not beat capitalism. They can impose a fascist state, but ultimately a competitor emerges that embraces market forces and the liberals find all they embrace falling into decay.
The liberals with their green ideology thought they were going to save the world by destroying coal power plants. Now instead of the coal being used here in the cleanest operating plants in the world it's being shipped to countries that burn the coal with little or no control over the pollution. They don't look beyond their emotions.
If you don’t believe this nation is still being protected by God, consider this:
As the liberals were closing down our coal power plants, we find an abundance of natural gas right under our feet that will power this nation for another 200 years.
Thanks. Pretty much what I thought.
GREAT POINT!
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