INSIGHT: Chemical market has future in US northeast

06 December 2011 17:32  [Source: ICIS news]

HOUSTON (ICIS)--A chemical cracker and plastics market in the US northeast continues to be a viable option, despite the proposed ethane pipeline from the Marcellus shale basin to the US Gulf.

“The Marcellus play has a tremendous amount of ethane,” said analyst Robert Bauman of Polymer Consulting International. “If you look at maps and look at the Marcellus, you will see a tremendous amount of area and square miles of shale gas. So [a Marcellus cracker] is not a matter of volume [of ethane]. It’s a matter of logistics.”

Shell and Bayer are pursuing ethane cracker projects in the northeast to service ethane production from the Marcellus and Utica shale basins in Pennsylvania, West Virginia and Ohio.

Pipeline projects have been announced, however, which would transport ethane to the US Gulf and Sarnia in southern Ontario, Canada, and draw down the region’s ethane supply.

Natural gas producer Chesapeake Energy announced a long-term contract with Enterprise Products to supply 75,000 bbl/day of ethane for five years to Enterprise’s proposed ethane pipeline from the Marcellus and Utica shale regions to the US Gulf.

The pipeline will have an initial capacity of 125,000 bbl/day, and is scheduled to be in service by the first quarter of 2014.

“Without a market for ethane, the industry [in the Marcellus shale] could be choked in its formative stages,” said Chesapeake vice-president of corporate development Scott Rotruck. “Now that we have made arrangements for a pipeline outlet, we can produce more ethane and turn our attention to the development of a local cracker.”

If local customers will pay the same price for Chesapeake’s ethane as Enterprise, Chesapeake will consider committing ethane production to a local cracker, Rotruck said.

“If we can get a better price locally, we have the ability to choose not to ship barrels to the Gulf of Mexico,” Rotruck said.

Analyst Dan Lippe from Petral Worldwide said the Enterprise pipeline project is attractive because of the company’s reputable midstream sector.

The pipeline would feed Enterprise’s natural gas liquids (NGL) storage in the US Gulf. The company also has a natural gas liquids fractionator, and import and export terminals.

“[Enterprise] has all the bells and whistles – most importantly all the pipeline connections to all the ethylene plants in Texas and Louisiana,” said Lippe.

The volumes of ethane in the shale basin are such that they can likely support both pipeline and cracker projects.

President Jack Lafield of Caiman Energy said there is plenty of supply for a 60,000–80,000 bbl/day cracker, in addition to the pipeline commitments. There will be 4–5 billion cubic feet/day (113.3m–141.6m cubic metres/day) of rich gas in the Marcellus region by the time a cracker comes on line, which would be 2016–2017.

“Negotiations are still underway with investors in the petrochemical industry to build a cracker in the production area – these pipeline announcements simply insure that all of our ethane barrels have a destination,” Rotruck said.

Shell announced it would reveal a location for a 60,000–80,000 bbl/day cracker in the Marcellus and Utica shale basins in January 2012.

“[Shell is] very active – as are other majors – in acquiring more rich acreage in the Marcellus and Utica,” said president Jack Lafield of Caiman, a producer in the Marcellus basin. “They estimate that they could produce enough gas from their exploration and production efforts to supply half the ethane needed for [their] cracker.”

Shell spokeswoman Alexandra Smith said Shell understands the need for immediate northeast infrastructure to support gas production.

In addition, Bayer continues discussions with interested companies considering the company’s available land in West Virginia, a possible location for an ethane cracker.

President and CEO Greg Babe of Bayer said the latest pipeline projects validate a multi-solution approach. A cracker, in addition to the pipelines, would maximise the resource.

In addition, NOVA Chemicals secured long-term supply contracts for Marcellus ethane production and announced plans for the transportation of ethane through an existing Sunoco pipeline to NOVA’s cracker in Sarnia’s petrochemical sector. The Sunoco pipeline will have an ethane capacity of about 50,000 bbl/day.

By: Sheena Martin
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