The Marcellus/Utica Shale plays holds so much natural gas liquids, primarily ethane, that within five years – despite all the pipelines built, under construction or slated to be built – regional ethane production will outpace take away capacity by at least 200,000 barrels per day, a new study maintains.
The excess production which, by the way, does not relay on a spike in NGL prices, should be very attractive bait to entice petrochemical companies to locate in the Pennsylvania/Ohio/West Virginia region, the new study states.
“However, the local [three-state] market will have to be at least as valuable as that for methane [natural gas], because producers should be able to reduce this excess considerably, and possibly entirely, by rejecting more ethane,” according to the report “Mapping the Opportunities for Shale Development in Ohio.” (Rejecting ethane means leaving more of it in the natural gas stream to be transported.)
Major study released
The 144-page study is one part of a three-part, nearly 300-page study released last week produced by the Cleveland State University Center for Economic Development’s Energy Policy Center, part of the university’s Maxine Goodman Levin College of Urban Affairs.
Shale gas well development over the last four years, sharply cut back due to continuing low prices, has prepared the way for a regional petrochemical and plastics manufacturing boom, according to the study.
“I think now I am more ‘smartly bullish’ about further development in the region [beyond exploration and production],” Iryna Lendel, assistant director of Cleveland State’s Center for Economic Development and co-author of the three-document study, told Kallanish Energy.
“We need to keep the product here – not drill to export, not just be an extractive economy,” Lendel added.
The Cleveland State analysis is not the typical economic forecast commissioned by the oil and gas industry which count jobs, wages and taxes that many times are off.
The three-part Cleveland State study looks at productivity of developed wells, the capacity of processing plants and pipelines in service, under construction and on the drawing board, and the most likely rate of additional wells being drilled and gas production through 2020.
‘Multiple’ crackers possible
Ethane attracts companies willing to spend billions to build crackers, complex facilties that break down the ethane and produce ethylene, a primary building block for plastics.
“The resource is here so that the region is capable of extracting enough ethane to supply multiple crackers,” Lendel told Kallanish Energy. “How many is ‘multiple?’” That I do not know. Each cracker is an internal decision by integrated companies that invest along portfolio lines – what best fits their portfolios.”
Three companies are proposing to build multi-billion-dollar crackers, including Shell Chemical, in Beaver County, Western Pennsylvania, a Brazilian consortium, in Parkersburg, West Virginia, and a Japanese-Thai consortium in Belmont County, Ohio.
The Cleveland State study team projects that if the three large crackers, plus a fourth, smaller, modular cracker (placed on hold earlier this year) were built, they would require roughly 223,000 BPD of ethane – roughly one-third of the anticipated total ethane locally available in 2020.
“With a projected take away capacity of about 430,000 BPD for the region in 2020, these two ethane markets would likely consume the regional ethane production, with 20% ethane rejection,” the study states.
Shell farthest along development road
None of the projects are under construction, or even have all the regulatory permits needed to build, although Shell is farthest along the regulatory route, having acquired the property, performed a great deal of site work and begun the permitting process.
On Nov. 10, the Pennsylvania Department of Environmental Protection (DEP) received from Shell an application to amend the National Pollutant Discharge Elimination System permit received this past June.
“That application does provide a transition from a preparation phase to an operational phase for the plant,” Neil Shader, DEP spokesman told Kallanish Energy.
Lendel told Kallanish Energy even though none of the cracker backers have committed to move forward, the region is still in good shape.
“The fact none of the companies have backed away, that they are still interested, means the commitment is there,” according to Lendel. “The first cracker is the hardest to build because it is taking the greatest risk.”