Profits may elude Marcellus-US Gulf ethane pipeline - analysts

09 August 2011 19:09  [Source: ICIS news]

HOUSTON (ICIS)--Profits may elude a proposed ethane pipeline connecting the Marcellus Shale formation to petrochemical plants in the US Gulf coast because of the distance involved, the need to convert the liquid ethane to vapour and the availability of closer supplies of the feedstock, an analyst said on Tuesday.

US-based producer and pipeline company El Paso and natural gas infrastructure company Spectra Energy have formed a joint venture to build the Marcellus Ethane Pipeline System (MEPS), a 60,000-90,000 bbl/day ethane pipeline.

It would run 1,100 miles (1,770 km) from the Marcellus Shale formation in the northeast to the US Gulf coast using existing pipeline infrastructure and new construction.

The central component of the pipeline is the existing Tennessee Gas Pipeline System. The Tennessee line formerly took natural gas from the Gulf coast to the northeast, but it is no longer needed, with shale production in the north.

The MEPS would be completed in 2014.

With the enormity of the US Gulf petrochemical market, the prospect of an ethane pipeline from the Marcellus has been a closely watched topic.

The announcement of the pipeline followed expectations for further ethane crackers on the US Gulf and expansions of current crackers totalling up to 3m tonnes/year.

The expected cost for the pipeline project is $1bn (€700m), according to information divulged at an El Paso investors’ presentation.

“I know it’s a project being reviewed pretty closely by people who own supply and want to use the end-use markets on the Gulf coast,” said Jack Lafield, president of Caiman Energy. “The reason they decided to undertake the project idea is in an attempt to use a gas transmission line that has been rendered empty due to change in their supply region from the Gulf Coast to the Marcellus.”

The northern segment of the MEPS would include construction of a 110-mile liquid ethane pipeline, according to the El Paso website.

However, since the existing Tennessee Gas Pipeline is configured for dry gas, the liquid ethane would need to be vapourised.

The central sector converts the ethane to vapour at the mainline valve of the Tennessee Gas Pipeline.

After travelling through the Tennessee Gas Pipeline, the ethane would be re-converted to a liquid for the southern segment of 60–166 miles of newly constructed pipeline, which would bring the liquid ethane to the Gulf coast, said the website. 

“By the time [MEPS gets] through converting the liquid ethane to vapour then back to liquid, it would likely cost as much to use it as a new-build across western Pennsylvania,” said Anne Keller, president of Midstream Energy Group.

Lafield is sceptical of moving a lot of ethane from the Marcellus formation to the Gulf coast.

Marcellus ethane would have to compete with current and upcoming ethane production from shale basins in Texas, Louisiana and Oklahoma that are under pressure to ramp up production, he said. The Eagle Ford basin in southern Texas is rich in natural gas liquids, including ethane.

Ethane from MEPS may not be competitive with local US Gulf ethane sources because of the liquid-to-vapour conversions and the distance from the Marcellus Shale to the US Gulf.

And Dan Lippe with Petral Worldwide added that there are natural gas infrastructure hurdles in the Marcellus region, such as limited local storage.

The binding open season to secure contracts for the pipeline began on 27 June with a scheduled end date of 27 July. But the open season has been extended to 15 September.

Lafield said “I think with their open season, El Paso was trying to get the project moving forward or kill it.”

El Paso spokesman Richard Wheatley would not comment on why the open season was extended. He said that the company would not speculate on market conditions or on pushing the project back until the results of the open season are in. He also would not reply to comments from analysts.

($1 = €0.70)

By: Sheena Martin
+1 713 525 2653

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