PITTSBURGH—A world hungry for energy needs Appalachia, one of its greatest resource centers, to develop a multi-commodity energy hub, an analyst told attendees at the recent Marcellus-Utica Midstream Conference.
That hub should be “a chain of value chains. Not just one, but multiple,” said Greg Haas, director of integrated energy at Stratas Advisors.
NGL will be particularly critical to the concept, he said, noting that its plentiful supply in the Marcellus and Utica shales “is the driver for all the concepts and the energy around this concept of an energy hub.”
The Stratas 10-year forecast shows roughly 2 million barrels a day (MMbbl/d) of incremental growth up to about 6 MMbbl/d of production. Of that, 2.9 MMbbl/d is in Petroleum Administration for Defense District (PADD) 1, covering the East Coast, and PADD 2, covering the Midwest.
Energy Demand
The challenge is to find markets for NGL like ethylene and propylene. Asia, which now accounts for 51% of global demand, might be a good place to start.
“The important thing is to note with all the planned expansions of ethylene crackers on the continent, it’s clear that we’re going to have to take market share from somewhere,” Haas said. “And our sense is that it will come out of Asia as well as out of the European manufacturers.”
It won’t be easy, though. Asia’s ethylene crackers are “a little more competitive than we had initially thought,” Haas said.
Still, creating a super-value chain hub puts Appalachia in a high-stakes worldwide competition with the potential for a tremendous outcome. With Appalachia facing competition domestically and abroad, a multi-commodity hub would position the region to take advantage of the glut of supply.
Tracking Progress
Haas outlined several major projects that have moved into Appalachia already, intent on getting good foothold on storage, NGL output, and olefins production, among other operations.
Asian companies are in the mix. Even during the conference, South Korea’s Daelim Industrial Co. joined Thailand’s PTT Global Chemical in a partnership to move forward with a proposed $6 billion ethane cracker in Ohio.
The Mariner East 2 pipeline expansion and a Utica-Marcellus-to-Texas pipeline could prove significant in dreams for an Appalachian midstream energy hub, Haas said. He noted that Mariner has been delayed by a state judge “because of some construction-related concerns, but the project sponsors, as I understand it, are still committed toward the 2018 startup.”
And throughout greater North America, Canadian projects such as Kinder Morgan’s Utopia Pipeline, which just came online, “helps feed the other crackers north of the border.”
This particular project, which went from “a couple of years of development and discussion and investment and construction … allows us to send up about 50,000 barrels a day of ethane to feed the existing and the expanding crackers in the Sarnia region,” Haas said, adding that some new pipe is being laid while existing assets are being utilized.
Overall, in the midstream energy hub vision, much money is in the offing—Haas said there’s the potential for about $100 billion in capex over the next 15 years dedicated to infrastructure in the area. Some of that infrastructure includes storage, and the Appalachia region’s own Mountaineer NGL storage facility will—if all stays on track—provide about 2 million barrels of NGL storage, partly by utilizing area salt formations for high-capacity underground salt mining, he said. He added that capacity could increase to 10 million bbl, and that the project could be online in late 2018 or early 2019.
Measuring Up
The potential for the region to be a quality midstream energy hub is clearly there, but what remains is whether Appalachia can command the capital commitments and company clout to pull it off. Haas noted that on the Gulf Coast, behemoth ExxonMobil Corp. recently said that over the next five years it would dedicate $50 billion of capex. Getting to “second place behind the Gulf Coast,” Appalachia could one day boast at least three sizable crackers, he said.
“Aspirations are now and imminent, but at the same time these hubs are made over decades and investing billions in capex,” he said, referring to not only the Gulf Coast, but Sarnia, Alberta and Quebec in Canada, and Kentucky and Illinois back home. “And so,” he said, an Appalachia hub “won’t be overnight, but the supply-side resources are definitely here and so are the competitors elsewhere.” It could materialize one day.
Erin Pedigo can be reached at epedigo@hartenergy.com.
Recommended Reading
Shell’s CEO Sawan Says Confidence in US LNG is Slipping
2024-02-05 - Issues related to Venture Global LNG’s contract commitments and U.S. President Joe Biden’s recent decision to pause approvals of new U.S. liquefaction plants have raised questions about the reliability of the American LNG sector, according to Shell CEO Wael Sawan.
Green Swan Seeks US Financing for Global Decarbonization Projects
2024-02-21 - Green Swan, an investment platform seeking to provide capital to countries signed on to the Paris Agreement, is courting U.S. investors to fund decarbonization projects in countries including Iran and Venezuela, its executives told Hart Energy.
Marathon Chasing 20%+ IRRs with Los Angeles, Galveston Refinery Upgrades
2024-02-01 - Marathon Petroleum Corp. is pursuing improvements at its Los Angeles refinery and a hydrotreater project at its Galveston Bay refinery that are each boasting internal rate returns (IRRs) of 20% or more.
Chesapeake Slashing Drilling Activity, Output Amid Low NatGas Prices
2024-02-20 - With natural gas markets still oversupplied and commodity prices low, gas producer Chesapeake Energy plans to start cutting rigs and frac crews in March.
CEO: Coterra ‘Deeply Curious’ on M&A Amid E&P Consolidation Wave
2024-02-26 - Coterra Energy has yet to get in on the large-scale M&A wave sweeping across the Lower 48—but CEO Tom Jorden said Coterra is keeping an eye on acquisition opportunities.