The U.S. Northeast now produces all the propane and butane it needs on an annual basis (Energy Information Administration - EIA PADD 1 plus Utica production from Ohio), but the seasonal nature of the region’s demand—and a dearth of in-region storage—means a lot of the natural gas liquid (NGL) production needs to be railed to storage facilities elsewhere during the warmer months, then be moved back in to meet wintertime needs. This propane/butane back-and-forth raises costs and reduces producer netbacks. Surely there is a better way. Today, we continue our review of NGL storage (or the lack thereof) in the Northeast, and how proposed NGL storage facilities in the region might help.
As we said in Episode 1 of our Northeast NGL storage blog series, NGL production in the wet Marcellus and Utica shale plays has been rising fast. According to EIA, in 2012, production of NGLs in Petroleum Administration for Defense District (PADD) 1 from natural gas processing plants (the region includes Pennsylvania and West Virginia, but not Ohio) averaged less than 50 Mb/d; but by March 2016, it had risen to 321 Mb/d, including 115 Mb/d of ethane, 118 Mb/d of propane, 37 Mb/d of normal butane, 17 Mb/d of isobutane, and 34 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. We also described the plan by Denver, CO-based Mountaineer NGL Storage to develop a facility of the same name at a riverfront site in Monroe County, OH (near Clarington, and just across the river from the base of West Virginia’s panhandle). Mountaineer’s proposed NGL storage facility would consist of several bedded salt deposit caverns that would be capable of storing a total of up to 2 MMbbl of ethane, propane, butane and mixed NGLs (also known as Y-grade). Mountaineer is planning an early 2017 construction start and an early 2018 commercial operation date.
In Episode 2, we described how the Northeast would benefit from additional in-region storage capacity for ethane—the lightest and, in many ways, the most challenging NGL to deal with. Ethane storage capacity near NGL production areas in western Pennsylvania, northern West Virginia and eastern Ohio, we said, would help deal with ethane market balancing issues not addressed by MarkWest’s unique ethane-management system, and would provide “safety stock” for any ethylene plant (steam cracker) that may be developed nearby. Six days after that blog was posted, Shell Chemical announced its final investment decision (FID) to build a Beaver County, PA cracker that is being designed to convert 90 Mb/d of ethane into ethylene and other products, as well as three polyethylene units that will convert ethylene into about 1.6 million tons of polyethylene a year (see Ain’t Wastin’ Time No More). Shell’s press release indicated that construction will not begin for another 18 months, so the cracker will not be online until sometime in the early 2020s.
While ethane storage capacity in the heart of the Marcellus/Utica region would surely help, there are other alternatives to balance ethane supply and demand. Ethane production surplus of local cracker needs can be either “rejected” into natural gas or transported out of the region on the Mariner East (to the Marcus Hook, PA export terminal), Mariner West (to the Sarnia, ON petrochemicals complex), or the Appalachian-to-Texas Express (ATEX) Pipeline to Mont Belvieu, TX. So it is likely that the highest and best use of additional NGL storage in the region would be for two other NGLs – propane and butane.