Northeast NGL market to take off if storage capacity strains are relieved
Building more natural gas liquid (NGL) storage facilities in the U.S. Northeast will help manage supply swings at ethane crackers and allow the NGL market in the region to take off, according to Marc Halbritter, senior vice president, Business Development at Blueracer Midstream/Caimen Energy.
Speaking at Petrochemical Update’s Northeast U.S. & Canada Petrochemical Construction Conference in Pittsburgh on June 28, Halbritter said that the entire Northeast region has between 5-14 million barrels (bbls) of storage, compared to more than 200 million bbls at Mont Belvieu in Texas.
Getting more NGL storage and other infrastructure built in the region is critical as shale development in the Appalachian region has significantly increased the output of NGLs in the Northeast and since Royal Dutch Shell decided on June 7 to build an ethane cracker and derivatives complex in Western Pennsylvania.
In March 2016, Sunoco Logistics Partners also began the first exports of Marcellus shale ethane via its Marcus Hook terminal near Philadelphia to Ineos’ petrochemical complex in Rafnes, Norway. Ineos and Borealis have signed long-term agreements to export Marcellus Shale natural-gas liquids to their European steam cracker complexes from Marcus Hook.
Ethane production (marketed ethane) in the Marcellus and Utica region has grown from around 23,000 barrels per day (b/d) at the end of 2013 to around 134,000 (b/d) currently, said Rick Stouffer, energy editor at Kallanish Energy, citing data by Ponderosa Energy.
Ethane production in the region will reach about 242,000 b/d by the end of 2020, according to Ponderosa Energy (see Figure 1 below).
Marcellus/Utica NGL production by product. Source: Ponderosa Energy.
There is at least one publicly announced NGL storage project in the Northeast – Mountaineer’s proposed greenfield NGL storage along the Ohio River near Clarington, Ohio.
The project will store ethane, propane, butane and y-grade products for a growing number of gas processors, producers, markets and commodity traders in the region.
Mountaineer will use the Salina salt formation as the storage zone for NGLs, with the first cavern expected to become operational in 2018 with about 500,000 barrels of storage. The company plans to offer up to 2 million barrels of initial storage capacity with more than 40,000 bbls per day of load-in and load-out and would be able to receive and send out Y-grade and “purity” products via pipelines, rail, truck, and even barge.
Mountaineer’s recent non-binding open season that concluded, however, resulted in requests for more than three times the amount of the project’s initial planned capacity, the company announced in May.
The project will help take some of the supply-demand fluctuations out of the market and make the ethane supply for petrochemical plants in the region more reliable, Halbritter said.
In addition, Sunoco Logistics’ Marcus Hook Industrial Complex has 900,000 barrels of overground NGL storage – 300,000 of refrigerated ethane and 600,000 of refrigerated propane – and will increase to 5 million barrels of combined pressurized and refrigerated storage once the company commissions its Mariner East 2 pipeline in 2017, according to Joseph Colella, senior vice president Business Development at Sunoco Logistics.
Ethane recovery and rejection
Due to limited transportation infrastructure and unfavorable economics, a large volume of ethane is rejected in the natural gas stream. Gas quality specifications of interstate pipelines require 1,100 – 1,110 btu/scf, while unprocessed wet gas is 1,225 btu/scf, or higher, with 3.5 gpm, or greater, C2.
The total NGL content of the gas in the Marcellus/Utica region is fairly high and the ethane content in the NGL barrel varies considerably from well to well – ranging between 50% and 70%.
Removing 25-30% of the ethane on average allows most wet gas to meet quality specs, according to Halbritter. The rest of the ethane can either stay in the gas stream and be sold as natural gas or it could be recovered and sold for use in petrochemical facilities, depending on the differential between the natural gas price and the ethane price.
Modern cryogenic processing plants have variable ethane recovery capabilities ranging from full rejection to up to 85% recovery.
Ethane rejection in the Marcellus/Utica is projected to average about 225,000 b/d in 2016, according to Ponderosa Energy, and will reach 258,000 b/d by 2020. At the same time, ethane recovery is expected to increase from around 140,000 currently to around 250,000 by decade's end as demand grows.
Future ethane pricing will also be key to warranting increased C2 recovery in the Northeast. The price of ethane has stayed around 20 cents/gallon in 2015 and 2016, according to Ponderosa, and is projected to increase to about 30 cents/gallon in 2017-2018 and stay largely flat through 2020 (see Figure 2 below).
The price is expected to rise as demand for ethane grows with the commissioning of new ethane crackers and expansions on the Gulf Coast in 2016 and 2017, and beyond.
Some 630 MBbl/d of confirmed crackers and new builds are expected to come online in the U.S. through 2019 and about 300 MBbl/d of ethane export capacity is set to startup over the next 18 months, according to Halbritter.
The NGL price will recover with gas & crude prices and historical linkages will not return due to demand dynamics. Source: Ponderosa Energy.
As new ethane-consuming petrochemical and export capacity reduces the ethane oversupply in 2016 and 2017, ethane prices are expected to generally remain above natural gas prices, leading to a rise in ethane recovery to meet demand and export growth, according to the U.S> Energy Information Administration (EIA).
In the Northeast alone, Shell’s Appalachia cracker project is estimated to consume around 100 b/d of ethane, starting in the early 2020s. Other cracker projects after 2021 that could limit the ethane that needs to be moved out of Marcellus/Utica production area and reduce the amount available for export include PPT/Marubeni’s proposed 1.0 mtpa project in Ohio and Braskem/Odebrecht’s proposed 1 mtpa project in West Virginia, neither of which has reached a final investment decision yet.
There are several options in the region for moving ethane that is not consumed regionally for crackers – Enterprise Products Partners’ ATEX pipeline from Pennsylvania to Mont Belvieu; Sunoco Logistics’ Mariner West pipeline to Sarnia, Ontario; Sunoco’s Mariner East 1 pipeline to Marcus Hook; and –– in the future –– Sunoco’s planned Mariner East 2 pipeline expansion to Marcus Hook, as well as Kinder Morgan’s planned Utopia East pipeline to Sarnia.