Whole Lotta Splittin’ Goin’ On – Marathon Petroleum’s Utica Shale Strategy

Finding a home for growing condensate range material being produced in the Ohio Utica shale play involves local refinery deliveries as well as new transport routes to markets outside the region as far away as Canada. Midstream companies are busy developing infrastructure plans to gather both wellhead condensate and output from natural gas processing plants in the region. Today we detail MPLX and its sponsor Marathon Petroleum Corporation’s (MPC) recently announced Utica shale plans.

We last looked at oil and condensate production in the Utica in May (2013). Our analysis showed that although the Utica was originally touted as the next big oil play, successful drilling has been concentrated in the Point Pleasant condensates and wet gas sectors of the play in Northeast Ohio (see drilling activity map below) resulting in more condensate and natural gas liquids (NGLs) production than oil (see Utica Oil or Bust?).  We also pointed out that low production volumes so far were caused by producers sitting on completed wells and waiting for infrastructure to be built in the region. The latest data from the Ohio Department of Natural Resources indicates that of 963 wells permitted, only 174 are so far producing. However, a surge in Utica liquids production is expected by the end of this year as new capacity comes online to process wet natural gas (see The Big Surge Comes to Whoville). The latest Bentek estimates are for oil and condensate production of 21 Mb/d increasing to 156 Mb/d by the end of 2018 (for Ohio, November 2013).

Source: Gulfport Energy Investor Presentation (Click to Enlarge)

With growing NGL output from the play, midstream companies have been rapidly developing and planning processing and fractionation infrastructure. Between now and 2015 nearly 4.7 Bcf/d of additional cryogenic natural gas processing capacity is due to come online along with 500 Mb/d of fractionation capacity and 500 Mb/d of NGL pipeline takeaway capacity to support growing Utica and wet Marcellus production (see Whoville, the Big New NGL Hub in Marcellus/Utica). Midstream companies are also making plans to handle significant condensate output in the Utica.  As we have discussed many times in RBN blogs, condensates are naphtha range materials with API gravity between 50 and 70 degrees (see Fifty Shades of Condensate Which One Did You Mean?). Lease condensate is produced at the wellhead and plant condensates are produced at various stages of gas processing – as part of the raw liquids stream separated from dry gas at cryogenic plants or as natural gasoline (aka C5 or pentanes plus) output from the fractionation of raw NGLs (see Like A Box of Chocolates – The Condensate Dilemma). For midstream companies the challenge lies in figuring out markets where there is demand for these naphtha range materials and then developing a strategy to deliver condensates to market.

In this blog series we look at midstream plans to capture and deliver condensate range materials to market from Utica shale production. In the first two episodes we describe condensate and crude supply infrastructure plans recently outlined by MPLX  at the Hart Energy DUG East Conference (November 15, 2013). MPLX is a Master Limited Partnership (MLP - see Masters of the Midstream for more on MLP structures) created in October 2012 to operate pipeline and transportation assets on behalf of sponsor company MPC.

Already this year MPC – the largest refiner in the Utica region - announced plans to spend $300 MM to build two condensate splitters - one with 25 Mb/d capacity at their Canton, OH refinery (expected online by the end of 2014) and the other with 35 Mb/d at their Catlettsburg, KY refinery located on the Ohio River (expected online by mid 2015). The two splitters will operate as separate units – meaning that their throughput is additional to refinery crude distillation capacity - and they will process raw condensate into a mix of gasoline and distillate products.  To meet that need MPLX and MPC announced plans at their 3Q 2013 earnings call to build and operate a pipeline system to transport crude, condensate and natural gasoline in southeastern Ohio and deliver it to MPC’s Canton refinery and to a barge loading facility on the Ohio River at Wellsville that will feed Catlettsburg. Before the pipeline is built MPC is currently delivering condensate to Canton via a 12 Mb/d truck rack unloading facility and to Wellsville via a 6 Mb/d truck to barge unloading facility.

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