Stranglehold - How More NGL Storage Would Help Balance Supply/Demand and Boost Northeast Netbacks

Ever-increasing production of natural gas liquids (NGLs) in the U.S. Northeast is highlighting—and exacerbating—what has always been a challenge for the region: a serious lack of nearby NGL storage capacity. In the years before NGL production took off in the “wet” Marcellus and Utica shale plays, this storage shortfall mainly affected propane and butane, with their very seasonal demand; the lack of Northeast NGL storage required a huge wintertime influx of propane and additional butane that had been stockpiled elsewhere. More recently, with Northeast NGL production booming, propane and butane barrels need to be moved out of the region by rail during the non-winter months and be railed back when the weather turns colder and motor gasoline blending limits are higher—killing producer netbacks in the process. Add to that a new (and equally vexing) challenge: dealing with the vast quantities of ethane being produced in the wet Marcellus/Utica. There is currently no in-region demand for ethane and (unlike propane and butane) you can’t just load surplus purity ethane onto rail cars. Today, we begin a series on the need for more NGL storage in the Northeast, and the pros and cons of a specific proposed storage project.

NGL production in the wet Marcellus and Utica shale plays has been on a tear. According to the Energy Information Administration (EIA), in 2012 production of NGLs in Petroleum Administration for Defense District (PADD) 1 from natural gas processing plants (region includes Pennsylvania and West Virginia, but not Ohio) averaged less than 50 Mb/d, but by February 2016 it had risen to 318 Mb/d, including 111 Mb/d of ethane, 118 Mb/d of propane, 37 Mb/d of normal butane, 17 Mb/d of isobutane, and 35 Mb/d of pentanes+ (natural gasoline). Ohio (part of PADD 2) only adds to the totals. The boom in Northeast NGL production has posed a real challenge to producers and midstream companies as demand for propane and butane swing sharply between summer and winter with heating demand for propane and motor gasoline blending demand for normal butane —and there is only a limited amount of NGL storage capacity in the region.

Since there are no pipelines to move propane and butane out of the Northeast during the warmer months, producers and midstreamers have had no choice but to move a lot of Marcellus/Utica-sourced propane and butane out by rail to storage in Michigan, Mississippi and elsewhere, and then rail it back when wintertime demand starts to kick in.  Or in some cases, the product is moved out of the region by rail and sold, then replaced in the winter months by volumes moved back in via rail or pipeline.  Either way, that back-and-forth is an expensive practice that has made it almost impossible to eke out decent netbacks (price realized at the wellhead) for these products. Ethane poses an entirely different challenge. Ethane (also known as C2 for its two carbon atoms per molecule) is the lightest NGL, and because of its higher vapor pressure and other physical characteristics, ethane is almost always stored as a liquid in huge, underground salt dome storage caverns and it is transported (as a liquid) via highly pressurized pipelines. The primary demand for ethane comes from ethylene plants (steam crackers) that use ethane as a feedstock; there currently are no steam crackers in the Northeast (though a few are in various stages of development), so all of the ethane produced in the Marcellus/Utica needs to be either “rejected” into natural gas or moved out of the region by pipeline—on ATEX to crackers along the Gulf Coast; on Mariner West to Sarnia, ON; or on Mariner East to Marcus Hook, PA, where ethane can be loaded on ships for export.

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