Natural gas producers, processors seek new markets
Shale gas producers and processors struggling with a continued supply glut in Appalachia are looking for different customers as more pipelines come online.
“What we need (are) new markets,” Donald Raikes, a senior vice president at pipeline company Dominion Transmission, told industry leaders who gathered Wednesday in Pittsburgh for a conference focused on connecting wells to customers.
The boom in gas production from the Marcellus and Utica shales outpaced demand and pipeline capacity over the past year, sending prices to 16-year lows in December. Companies have pulled back, slashed budgets and laid off workers.
More gas-fired power plants and exports will take a larger chunk of that supply and give a slight boost to prices over the next few years, analysts and company leaders said during Hart Energy's Marcellus-Utica Midstream Conference at the David L. Lawrence Convention Center, Downtown.
But producers and midstream companies — which operate pipelines, gathering systems and processing plants — need to coordinate on projects that can reach new customers domestically and overseas, speakers said. Several companies are focused on new opportunities for selling natural gas liquids (NGLs) such as ethane, propane and butane, as well as oil condensate that comes from some wells.
“With NGLs, we see a market that requires a little more creativity,” said Elie Atme, vice president for marketing and midstream operations at producer Range Resources Corp.
If companies such as Royal Dutch Shell build one or more petrochemical plants proposed for the Ohio Valley region, they will consume a lot of ethane. But Range also is looking overseas; its first shipments of ethane to Europe from Sunoco Logistics' terminal outside Philadelphia are expected to begin next month.
Processor MarkWest Energy Partners and its new corporate parent, Marathon Petroleum Corp., are considering building a facility in the region that would convert butane to alkylate, which is added to gasoline to reduce vapor pressure in the summer.
The companies hope to sell that product to gasoline refiners in the Northeast and Midwest that buy it from the Gulf Coast, said Scott Garner, a vice president at MarkWest. Otherwise, companies need to look at exporting more butane and propane overseas, he said.
Exporting any of the products coming from Marcellus and Utica wells requires interstate pipelines and terminals. Dominion is more than halfway finished with its Cove Point export terminal in Maryland and set to open late next year, Raikes said.
It also hopes to build the 550-mile Atlantic Coast pipeline to the Southeast, though environmental groups have promised to slow or halt such products.
Smaller, intrastate pipelines can open markets by connecting to existing lines. Marathon is working on a 50-mile line in Ohio that would connect several processing facilities to pipelines that can take condensate and other products to Midwest refineries, said Craig Pierson, president of Marathon Pipe Line.
Condensate, which is common in some Utica and Marcellus wells, is a light oil that can be used by the petrochemical industry.
Some economic models still show the need for more large pipelines, though. The relative low cost of drilling in the Marcellus and Utica shales mean production will continue to increase here, despite low prices, several analysts said.
One model shows Appalachian production continuing to outpace the capacity of pipelines to take it away in 2025, requiring the construction of at least one more very large interstate line, said Rick Notarianni, an analyst with Houston-based McKinsey & Co.
With producers and pipeline companies short on cash because of low prices, the question of who can or will build such a pipeline looms large.
“Nobody has the ability to fund this on their balance sheet right now,” he said.
David Conti is the Tribune-Review's assistant business editor. Reach him at 412-388-5802 or firstname.lastname@example.org.