Natural gas liquids pipeline suspended, but drillers hardly lack pipeline options

A pipeline that would have shipped natural gas liquids from the Marcellus and Utica shale plays to the U.S. Gulf Coast has been suspended, but the project is not dead, according to one of the companies involved in the multi-state project.

The Bluegrass NGL pipeline project is just one of many in the Appalachian Basin, the formation that includes the Marcellus and Utica, that are competing to transport natural gas liquids (NGLs) to new markets. 

Boardwalk Pipeline Partners and Tulsa-based Williams said last week they would suspend investment in the Bluegrass pipeline due to a lack of commitment from drillers signing up for space on the system. The pipeline would have transported liquids such as ethane and propane more than 1,000 miles from Mercer County to the Gulf Coast, where they could be turned into products for the plastics and chemicals industries or exported overseas.

NGLs require different pipelines than natural gas, which is comprised mostly of methane, the product used for cooking, heating and power generation.

Boardwalk CEO Stanley Horton said during the Houston, Texas-based company’s first quarter conference call that the joint venture between Boardwalk and Tulsa-based Williams is still in place.

“The project is not dead. Discussions with customers continue,” Mr. Horton said.

Williams CEO Alan Armstrong said during the company’s earnings call, “We'll certainly stand by, ready with Bluegrass for the industry if it becomes adequately supported by contract.”

The Marcellus and Utica regions are expected to be key players in producing the natural gas liquids that will need to find a market, but in the short term, it looks like there’s enough capacity to handle current liquids production, experts said. 

By 2019, natural gas liquids production is expected to average 740,000 barrels per day, or 740 Mb/d, seven times the production levels in 2013, according to Bentek Energy, a Denver analytics firm. Much of that is ethane and propane.

When Bluegrass NGL Pipeline was on the table, there was more than enough capacity in other proposed pipeline projects to handle production from the region, said Maria Mejia, energy analyst for Bentek.

In total, about 815 Mb/d of pipeline capacity was proposed by various companies aiming to take about 740 Mcf/d of natural gas liquids out of southwestern Pennsylvania, Ohio and West Virginia, Ms. Mejia said.

Those pipelines — all in different stages of development — would take natural gas liquids to the Gulf Coast or Sarnia, Canada, where facilities already exist to process them for the domestic market or export them to foreign markets. Another destination via Sunoco Logistic's Mariner East pipeline would take liquids to be exported through the Marcus Hook industrial complex near Philadelphia.

In the future, some natural gas liquids may also stay in this region, since four ethane crackers have been proposed, including Shell Chemical’s multi-billion dollar ethane plant in Beaver County. Those ethane plants plans have not been finalized. An ethane cracker creates ethylene, a compound used in the manufacture of plastic, packaging and other materials.

In addition, drillers have another option for handling excess ethane by blending some into natural gas pipelines, though there are limits on how much ethane can be blended.

While all the projects are vying for the same NGLs, the Bluegrass plan was most similar to a proposal by Kinder Morgan Energy Partners called the Utica Marcellus Texas Pipeline (UMTP), Ms. Mejia noted. The UMTP system would span 1,220 miles from Pennsylvania to Texas, mostly by using converted natural gas pipelines to transport natural gas liquids.

“It didn’t make sense to have two parallel pipelines to transport (NGLs) from the Northeast to the Gulf,” Ms. Mejia said.

“If shippers hadn’t signed up for Bluegrass or UMTP, this will probably trigger them to sign up now,” she said. “I think it was a matter of someone having to give up. It wasn’t because one project was better than the other. But it was impossible to get commitments to both.”

Anthony Yuen, director of commodities strategy for New York-based Citi Research, said the suspension of Bluegrass is "a timing issue," but the market may change if drilling continues at a strong pace.

Natural gas producer Range Resources is using several options to ship its natural gas liquids. The company already transports NGLs on the recently-completed Sunoco’s Mariner West pipeline to Canada and on the Appalachia-to-Texas Express pipeline to Texas.

It plans to use another pipeline in the works — Sunoco’s Mariner East pipeline to Philadelphia — when it goes into service in 2015, Ray Walker, executive vice president and chief operating offer said during the company’s recent earnings call.

Anne Keller, manager for NGL research for Houston-based Wood Mackenzie said there should be enough pipelines — both planned projects and those already in service — to handle production through 2018 without Bluegrass.

“It doesn’t mean there won’t be a need for takeaway capacity later, but it will take waiting to see how that market develops,” she said, noting there are several other pipelines in the area.

Now the challenge is having enough pipelines to handle the glut of natural gas in the region, which have different pipeline requirements, Ms. Keller noted.

“It’s a see-saw,” she said. “Ethane was the problem. Now it’s the gas.”

Stephanie Ritenbaugh:, 412-263-4910.

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