Energy Giants Bringing Billions to Utica Shale
PITTSBURGH – In two years, about $1 billion in wages could be flowing into workers' pockets as a result of Chesapeake Energy's massive midstream project to be built in eastern Ohio that would process natural gas drilled from the Utica shale.
"I couldn't be more excited for this particular region," said J. Mike Stice, chief executive of Chesapeake Midstream Partners LP, during the Hart Energy Marcellus Midstream conference Tuesday. "The stimulus is amazing for eastern Ohio. They are truly blessed to have this diversity of supply underneath them."
Chesapeake Midstream Partners LP, Momentum/M3 Midstream LLC, and EnerVest Inc. last week announced that they planned to invest $900 million into developing a pipeline and midstream system that would gather and transport natural gas to a new processing and compressor plant in Kensington, in Columbiana County, and a fractionation plant in Harrison County.
"We plan to spend over $1 billion over the next two years developing the wet-gas window," Stice said. "That billion dollars is just in payroll. When you look at the overall development, I believe they'll be about $10 billion in midstream pipelines alone."
He reported that the Utica shale, a rock formation buried thousands of feet below eastern Ohio, contains a natural gas liquids-rich stream that will require a massive infrastructure overhaul throughout the region. "When you have NGL-rich natural gas, you have to build processing plants, fractionation centers, and you have a whole other layer of economic stimulus."
The Chesapeake executive said energy exploration and midstream development across Pennsylvania's Marcellus shale created about 150,000 jobs, and he sees the Utical shale generating similar job-creation numbers in Ohio.
But the oil and gas infrastructure in Ohio and western Pennsylvania is simply too antiquated to handle huge volumes of liquid natural gas, Stice said, and the network requires a massive upgrade. "This is a new economic stimulus, a new investment."
Initially, Stice said Chesapeake's project would focus on the "heart" of the Utica play, that is, Carroll, Harrison and Columbiana counties before considering new infrastructure projects to the north or the west. "These are significant long-term investments. You're looking at a 50-year project life."
More than 200 vendors from across the country and 2,000 participants attended the conference, which featured speakers and presentations from executives and officials involved in the midstream segment of energy exploration. Midstream involves the gathering, transportation, compression and separation of natural gasses so the products can be marketed and sold for various uses.
"What we have in our region is that we've been manufacturing goods for a long time," said Tom Angelo, director of the city of Warren's wastewater treatment plant, "The reason we're here today is to let the world know what we already know, that we have the ability to really support this industry."
Angelo, along with David Harrison, economic director for the village of Lordstown, and Charles Joseph, a broker associate for Routh-Hurlbert, attended the event to showcase Trumbull County's assets. "We have the infrastructure, we have the attitude, we have the government that is going to stand behind the businesses that come in and we have a trained staff ready to get to work."
Other companies that are tied to the industry saw it as an opportunity to place their services before some of the biggest names in the oil and gas industry.
"We're very busy," says Nancy McCleery, sales representative for Consolidated Pipe & Supply Co., an Atlanta-based pipe supplier with offices in Streetsboro. The company sells transmission pipe to midstream energy companies, and she says midstream activity as a result of shale exploration is still in its infancy. "It's just getting started," she noted.
Other companies, mostly based in the Gulf region, are canvassing eastern Ohio and western Pennsylvania for a stake in midstream development.
Tim Sicard, director of business development for Audubon Engineering, with offices in New Orleans and Houston, said that his company plans to open two new offices – one in Steubenville and another in Canonsburg, Pa. "We provide a turnkey operation for processing plants," he reports. "We should have around 40 employees by the end of this year in the Utica. Most of them will be local hires."
The company employs 700 total, and has worked on projects in Indonesia and Africa. Sicard added that the Utica holds tremendous potential for growth for his company and the industry.
Other energy giants are getting into the act. On Monday, Williams Partners LP announced that it had acquired Caimen Energy for $2.5 billion, which provides Williams Partners with a footprint in the liquids window of the Marcellus shale and the potential for the Utica.
"The business we have in Pennsylvania, it's a natural extension to move west into Ohio," said Frank Billings, vice president of Williams Midstream. "I think we have an opportunity to take the relationships with our existing producers all over the United States, those producers who are doing business in Ohio."
Jack Lafield, president and CEO of Caimen Energy, says his company started doing business in the Marcellus shale about three years ago. "We got into the ground early in this area, and what we see in the Utica is a similar development – it's going to take time."
Still, some conference participants expressed concern that the liquids-rich play could be overplayed.
Kristen Holmquist, manager for natural gas liquids at BENTEK Energy, told attendees that continued production of ethane can be processed relatively easily through proposed cracker plants that processes that gas into products such as ethylene, which is used in plastics. But it may be more difficult to maintain reasonable prices on propane, she said.
Production of propane is expected to reach 200,000 barrels per day by 2020 to supply the northeast, but demand in the northeast is projected to reach just 180,000 barrels a day.
The surplus could place stresses on the storage system, so the solution is to either boost exports to Europe through the northeast or construct cracker plants that would convert propane into polyethylene, she said.
Rodney Waller, senior vice president of Fort Worth-based Range Resources Corp., said the key to develop natural gas liquids is through cooperation, partnerships and communication between these partners. Absent that, liquids gas prices could tumble on a scale that would make further exploration unprofitable, similar to what has occurred with natural dry gas prices, he warned.
"If we over-drill the NGLs, and are not working in concert to understand how to systematically dispose of that product, we will cause the same discrepancy in NGL pricing that we have in natural gas pricing," he said.
Waller cites a partnership Range reached with Denver-based MarkWest, the midstream company that developed massive processing plants in Houston, Pa., and Majorsville, Pa. -- and last week announced it would invest $1 billion to build plants in Harrison and Monroe counties in Ohio. The Range/MarkWest system helped centralize midstream processes in the Marcellus. But processors in the Utica appear to be more scattered with additional players and more competition, he observed.
Waller noted that the proposed Mariner East project, a collaboration with Sunoco Logistics and MarkWest, would send propane and other liquids to Philadelphia via a large pipeline, and then be exported internationally from there.
"You've got to have the same vision," Waller said. "There's lots of opportunities, but unless we really plan deliberately on how we're going to develop this on a systematic basis, to keep what we've always had in pricing, Appalachia will have been a faded glory -- over-drilled, over-supplied, and under rates of return."
WATCH today's Daily BUZZ, posted this afternoon at our home page, for exclusive video coverage from the Hart Energy Marcellus Midstream Conference.
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