Ethane puts Western Pennsylvania drillers in a predicament
For shale-gas drillers, the path to prosperity is reaching far from Pennsylvania.
Europe, Canada and the Gulf Coast — drillers increasingly rely on far-flung markets for some of their gas, even as they wait for permission to ship larger quantities abroad. Consol Energy Inc. this week announced a deal to join gas producers shipping to the European petrochemical industry, following the lead of Range Resources Corp., which helped open a pipeline to Canada last summer.
Drillers are searching for diverse markets, especially to solve a tricky challenge involving ethane. It burns hotter than methane, so it is not allowed in the same pipelines that help heat homes and supply industrial fuel.
Some companies have received waivers to ship ethane through those pipelines, but that is a temporary solution. Drillers in Washington and Greene counties and other areas where ethane is a common product from shale-gas wells need to figure out a better plan.
The dilemma was highlighted last week when ethane concerns caused a small stock sell-off after executives at Chesapeake Energy Corp. said an increase in Appalachian ethane was a drag on its prices, according to analysts at Macquarie Group Ltd.
“If you're going to be bringing that much up, you just better have a way to move it. ... In some cases, it's going to be a decisive element in determining profitability,” said Kent Moors, executive chair of the World Affairs Council of Pittsburgh's global energy symposium. “This is a very unforgiving market. You miss your top line and bottom line for a little bit ... and (investors) just hammer you.”
Demand is so great that there are plans by Sunoco Logistics Partners LP to add a second dedicated pipeline for ethane and propane to a system it just started building to link Washington County and Philadelphia. The Mariner East project faces court challenges from more than a dozen landowners who are fighting the company's efforts to take rights of way by force.
Consol and Range want to use the system to reach European customers through a Philadelphia-area export terminal. By 2016, more drillers could follow. Sunoco Logistics announced in December that it will open discussions on contracts for Mariner East 2, a longer pipeline from Ohio and West Virginia stretching along the same Mariner East path being challenged in court.
These projects for ethane and other liquid gases have started up years before bigger projects planned to export natural gas. The federal government doesn't regulate the export of liquids like ethane and propane, but it does have a say in some natural gas exports. That created a permitting backlog, leaving projects for new multi-billion-dollar export terminals on the drawing board.
There is urgency surrounding ethane because of pipeline limitations. Drillers had waivers to put ethane into the natural gas pipelines, but those waivers are running out if not already expired, said Joe Magner, senior oil and gas analyst with Macquarie.
That means drillers without access to ethane pipelines have to dilute their ethane to put it into the natural gas system. It can be expensive and risky because they have to buy more natural gas, blend the ethane in, then resell all of it. The process itself brings more natural gas onto the market, potentially worsening supply gluts and lowering prices, Magner said.
That gives an advantage to companies that have specially designed ethane pipeline to sell to ethane customers, especially if they signed early to get better prices and access, experts said.
“It just puts other companies that haven't participated in those deals at the whims of market forces,” Magner said. “There really aren't any (alternatives), practically. It's either have access to the projects to ship the (ethane), or blend (it into) your gas stream. That's really not a sustainable solution.”
That's what happened to Chesapeake. It will use a pipeline opening this year to take its Appalachian ethane to petrochemical plants on the Gulf Coast, executives said in a conference call last week.
Range Resources, the dominant driller in Western Pennsylvania, has touted twin export pipelines in addition to the gulf-bound pipeline. Mariner West, which it helped open this summer, goes from Washington County to Ontario. Mariner East is the 70,000-barrel-capacity line from Washington County to the Philadelphia area, which Consol said on Thursday it, too, will use.
Such options worry some civic leaders and businessmen who want that ethane to stay close to home and supply a petrochemical plant such as one that Royal Dutch Shell plc has proposed for Beaver County.
Consol has a deal to supply that plant, too. Industry boosters and analysts have said this competition for ethane isn't an impediment to Shell. They say more markets for ethane, no matter where, will encourage drilling.
Consol mentioned the Shell deal in its announcement, saying both are important to the success of drillers. Company officials declined to say how much they're shipping to Europe or at what cost. They said the buyer is manufacturer INEOS Europe AG.
“This agreement and others like it signify a vote of confidence that the Marcellus shale resource base represents a long-term, reliable energy supply for industrial users both at home and abroad,” Consol president Nick DeIuliis said.
Timothy Puko is a staff writer for Trib Total Media. He can be reached at 412-320-7991 or email@example.com.
Show commenting policy
TribLive commenting policy
You are solely responsible for your comments and by using TribLive.com you agree to our Terms of Service.
We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.
While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.
We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers.
We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.
We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.
We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.
We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.
- Steelers to bring LB Harrison out of retirement
- PennDOT puts 14 Alle-Kiski Valley bridges on list to be replaced
- Freeport dock bid exceeds resources
- Harrison OKs antenna zoning change
- Steelers defense must replace three injured starters after victory
- Flag holders stolen off veterans’ graves in Lower Burrell cemetery
- Apollo-Ridge middle school library project gains STEAM
- Liriano, McCutchen help Pirates to 1-0 win over Braves
- Cloverleaf bridge work to resume after change
- Pirates notebook: Volquez open to re-signing with team
- Red Wings beat Penguins, 2-1, in preseason opener