PITTSBURGH ─ Sunil Sibal, director and senior MLP analyst with Global Hunter Securities, told attendees at Hart Energy’s recent Marcellus-Utica Midstream Conference that shale plays in the Lower 48 states have a total resource potential of more than 1 quadrillion cubic feet equivalent.

Prolific shale production growth in the last five years has resulted in 80% of the approximate 20 billion cubic feet per day (Bcf/d) of gas growth is coming from the Marcellus and Utica shales combined. Looking at the overall U.S. gas supply scenario, Sibal said that about 20% of overall gas is coming from the Marcellus and 2% from the Utica at the end of 2014.

As is well known, the big challenge for the Northeast shale plays is getting the gas to end customers. There are still bottlenecks because of the inadequacy of transportation infrastructure, which has resulted in gas price spikes experienced in many regions, despite the available supply. “There is a disconnect between what the producer is getting and what the end consumer is paying,” he said.

Midstream operators have responded and are building infrastructure that will provide takeaway capacity of about 20 Bcf/d from 2014 through 2018, according to Sibal. He said there is another 10 Bcf/d to 12 Bcf/d of proposed capacity under discussion, which will probably be rationalized over the next few years depending on firm transportation demand by E&P producers and other shippers. He said that the total capital expenditure on committed projects is about $20 billion.

As the Northeast region becomes increasingly self-sufficient for its gas needs, Sibal said more announcements are targeting U.S. LNG exports. He noted that 5.5 Bcf/d of U.S. LNG capacity is under construction and another 6.5 Bcf/d is in the final Federal Energy Regulatory Commission or final investment decision approval stages. In all, he explained in the U.S. there is a total of about 12 Bcf/d of U.S. LNG export capacity and that another 11 Bcf/d is still under evaluation.

“The U.S. LNG export market is facilitating more and more of this continued Marcellus and Utica development as the U.S. Northeast market gets more saturated,” he said.

NGL Production

According to Sibal, in 2014, nearly 250,000 barrels per day of NGLs were produced in the Marcellus region, and with it has come the rapid development of processing and fractionation capacity. More than 4 Bcf/d of wet gas volumes were processed in 2014, and NGL fractionation production in the same period was more than 200,000 barrels per day (bbl/d).

At the same time, Sibal said that more regional takeaway solutions are underway, including Mariner West, Mariner East Phase 1 and 2, Utopia and ATEX pipelines that represent existing and planned capacity of 570,000 bbl/d, of which about 60% to 70% is ethane. “The challenge is finding a petrochemical end use for this ethane, and ethane export products are getting more acceptance,” he said.

Export Opportunities

In the meantime, Northwestern Europe (NWE) is showing an increased appetite for U.S.-sourced ethane because of the significant cash cost advantage vs. higher-cost naphtha, which is derived from crude oil. “Just imagine a molecule of ethylene that sells for 45 cents to 50 cents per pound, you can gain an advantage of close to 25 cents to 26 cents per pound if you are sourcing ethane from the Marcellus or the Utica regions,” he said.

He said that this advantage is shrinking with lower crude prices, adding that U.S.-exported ethane to NWE petrochemical producers works at even $60 per bbl. So far, he noted that U.K.-based INEOS has signed up for taking ethane from the U.S. Northeast.

Moving to propane, production is rising from gas processing plants but there is not enough domestic demand. He reminded attendees that only four years ago, the U.S. was an importer of propane, and now it is the largest exporter in the world, overtaking Qatar last year.

“What’s fueling the export market is the price arbitrage that exists between the U.S. and international markets; U.S. shale production continues to increase, keeping prices low.”

Finally, Sibal speculated on the impact of reduced E&P capital spending on the midstream. “It really has to do with producer economics. From all the information we’ve seen thus far, spending cuts are not resulting in throttling back production because they are getting more efficient in producing this gas. The net impact is that production would be growing considerably in the Marcellus and Utica, probably slow down by 10% to 15% but it will still be growing in excess of 25%.”

Comments