A program of the West Virginia Oil & Natural Gas Association

Howard Swint: Midstream key to West Virginia's economic growth

By Howard Swint | Gazette Daily Mail | May 11, 2018

West Virginia is at the center of a massive shift within the global energy markets that will profoundly reorder the state’s economy for generations to come.

Its impact is already being realized in the natural gas industry, whereby West Virginia-based operations are now producing so much dry methane and natural gas liquids (NGLs) that they are both being exported internationally.

And depending on key decisions within the global petrochemical industry, the Mountain State could become the home of manufacturing operations utilizing those liquids here in addition to transporting them to other locations. Due largely to area Marcellus and Utica shale fields, our region has many competitive regional advantages that are proving to outweigh even the Texas and Louisiana Gulf Coast, the traditional locations for petrochemical operations.

Location decisions are determined by corporate-specific analysis of potential sites. That analysis also considers the availability of ethane storage facilities nearby. Ethane storage will guarantee a steady supply of feedstock for the chemical manufacturing plants, as well as to stabilize the price for their source ingredient.

Until these multibillion dollar decisions are made, it is important to note the degree of related industrial development that has already occurred in the northern half of West Virginia, where the high-volume of raw natural gas liquids is reordering the economy.

When NGLs come out of the ground, they generally are a mix of impure gaseous vapors. Historically, those heavy vapors — unprocessed constituents of ethane, propane and butane — were spurned by natural gas drillers as a nuisance.

In areas where NGL quantities were too high, the gas coming out of the wellhead would first have to be chilled to “drop” the liquid vapors out of the gas stream. Then if dedicated pipeline capacity to carry off the liquids was insufficient, they would simply be flared off, wasting a valuable product.

Today however, in many regions, NGLs are more valuable than the dry methane gas. An increasing number of drilling rigs are relocating to remote wet fields where less efficient tanker trucks and railcars transport the raw mix of liquids to fractionation facilities for separation.

This shift in the NGL market, coupled with the need for capital-intensive infrastructure to further process ethane, propane and butane for “purity markets,” is what is restructuring the industrial composition of the northern half of West Virginia.

Known within the industry as “midstream operations,” midstream companies collect, process, and fractionate NGLs (so-called because ethane, propane and butane are reduced to like-fractions) using stringent industry standards for composition, vapor pressure, distillation and corrosive specifications.

In Marshall County alone, Blue Racer Midstream has invested more than $1 billion as part of its 600-mile interstate network of large-diameter pipeline gathering system and fractionating facilities.

Dwarfing that is the multi-county economic impact of midstream operator Markwest Energy, a wholly owned subsidiary of MPLX LP, which is a master limited partnership of Marathon Petroleum.

The Liberty system then connects with a massive network of interstate purity pipelines in Houston, Pennsylvania, including the Mariner West (Canada), Mariner East 1 (Marcus Hook International Terminal) and ATEX (US Gulf Coast) pipelines — all serving international markets.

When the Shell Falcon Pipeline system is completed to the Pennsylvania Petrochemical Complex in Monaca, Pennsylvania, Markwest will also supply purity ethane to that facility, under long-term contract, from West Virginia sources.

And should PTTGC America go forward with its proposed cracker in Belmont County, Ohio, the Liberty System could also source supply through the Majorsville complex.

The massive investments in West Virginia by Markwest and other midstream operators are already reordering northern West Virginia’s economy before the first petrochemical cracker has been built.

And it may well prove that they hold the key for future economic development, as they could easily supply any number of conceptual sites for ethane storage facilities that would be the lynchpin for a new NGL trading hub.

Such a trading hub would be crucial to worldwide petrochemical markets and could drive further development for the entire Marcellus and Utica Shale plays in West Virginia, Ohio and Pennsylvania.

Howard Swint is a commercial property broker.


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