PITTSBURGH—Marc A. Halbritter, senior vice president of business development for Blue Racer Midstream, said he’s optimistic about the future, particularly in the Marcellus-Utica region.

Despite the steady decline in price for WTI, NGL and natural gas, which has led to a significant decrease in drilling, Halbritter said drilling activity has started to pick back up, noting “that’s the first positive indication of what the future may hold.”

Marcellus and Utica production is expected to lead growth among U.S. natural gas basins. It is estimated to show a 71% increase from January 2015 to 2021, according to Halbritter, who spoke in a panel at Hart Energy’s recent Marcellus-Utica Midstream Conference & Exhibition.

“In fact, Marcellus [and Utica] production is expected to surpass the Bakken and Eagle Ford in the early 2020s or 2030s. That’s the second positive indication that’s expected to come from there,” he said.

The improvement of the price basis differential on the natural gas side is also anticipated to drive production in the region, according to Halbritter.

“Natural gas basis has easily been over a dollar negative in the region from time to time as compared to Henry Hub, and you can see that over time just how wide it’s been. Pipelines get added over time, the Rovers, the Nexus, the Columbia projects,” he said, referring to the projects in motion. “Those tend to drive that basis closer, and the discount of Henry Hub lower, that will make it more profitable for producers to drill in our area.”

Ethane Durability

A third indication of increased production growth is the outlook for ethane demand, Halbritter said.

Up to 930,000 barrels per day (bbl/d) are going to be needed on top of what’s already being produced today, he said, “There’s 1.9 million barrels per day today being consumed, but there’s another 930,000 that could come.”

That growth consists of 630,000 bbl/d from new ethane crackers on the Gulf Coast and another 300,000 bbl/d of exports, he noted.

Another 245,000 bbl/d of recoverable ethane in the current stream of Marcellus-Utica production remains challenged, he said. “There’s going to be some challenges for ethane to make it down to the Gulf Coast to the ethane crackers down there. And that’s mainly because it’s very high-cost to get there. By the time you add in incremental fractionation and transportation, you can be as high as 22 cents per gallon.”

Due to the high cost of access to the Gulf Coast, ethane needs the price of gas to be at least $3.50/MMbtu. “So something is going to have to happen much more than the prices that you see for ethane, if ethane is going to come from the Northeast,” Halbritter said.

Even then, he said, local ethane pipes are nearly full with limited expansion capability, opening the door for local crackers.

“Ethane is a very, very important driver in what we expect to be a strong NGL recovery in the next 12 to 24 months,” said Frank Tsuru, president and CEO of M3 Midstream. In the Utica and the southwestern Marcellus, approximately 55% to 60% of that NGL barrel is ethane, he said, further noting that nationwide producers have been rejecting 500,000 to 600,000 bbl/d of ethane for the last couple of years.

“Current deliverability is 2 million barrels, and our demand is just under 1. 5 million barrels; therefore, the difference is made up through the rejection of ethane. I think the demand is expected to increase in the imparity by 2018. In 2019, 2020, we see that the deliverability of ethane will dip below market demand.

“The market will adjust for the demand by increasing the price,” he continued. “In 2017, with ethane about 30 cents, the only profitable area for ethane recovery is the Gulf Coast, Texas or Louisiana. By the time we get into 2018, we predict ethane prices will be substantially higher allowing some of the other regions, including the Marcellus-Utica, to recover ethane. Finally, by 2019, the market demands will be such that, we see all basins in the U.S. will be recovering ethane and balance the market,” Tsuru explained.

Tsuru also said there’s significant capacity of gathering and processing assets out there to handle any increase in production in 2017 and 2018.

“Billions of dollars have been spent for new infrastructure to meet Northeast production demand. NGL is a huge component of the value chain and we’re expecting demand for NGL to outpace our ability to supply,” Tsuru said.

According to Halbritter, there’s also limited pipeline capacity currently available, including on the Mariner West and ATEX lines.

“There’s limited space capacity on those pipes, which in my mind creates opportunity and explains some the reasons why Shell is located here,” he said. “It will provide a local market for ethane and we can look forward to seeing PTT Global and any others locate in the region as well as just to have local demand. It’s going to provide better netbacks, we believe than going to the Gulf Coast.”

“Once all this next wave of pipe infrastructure gets built we will see that there are some things that happen where people have to step up and make a decision,” said Steven M. Woodward, senior vice president, business development, for Antero Resources Corp. (NYSE: AR).

Once pipe infrastructure gets built, Woodward noted that more transportation capacity will be needed by 2020, “which means people need to commit this year if they want to be in service. Otherwise, we will run out of transportation capacity as we continue to grow.”

Brandy Fidler can be reached at bfidler@hartenergy.com.