Company News

Marathon Bets $1 Billion on Ohio Utica

CANTON, Ohio — Eighty-five years ago, the Allegheny-Arrow Oil Co. commissioned a new refinery in Canton to process the crude oil that gushed out of the vertical wells in Ohio. Much of that local supply was exhausted over the next several decades, leaving the refinery to process oil shipped from other areas of the country and imported from abroad.

Today, the refinery – now owned by Findlay, Ohio-based Marathon Petroleum Co. – is once again refining Ohio oil into products such as gasoline, thanks to the plentiful supply of light crude in the Utica shale.

“One-fourth of our crude comes from the local area and we turn it into a portion of our product,” says Brad McKain, general manager at the Marathon refinery in Canton.

Oil pumped from horizontal wells in eastern Ohio’s Utica and western Pennsylvania’s Marcellus shale – called “condensate” – is processed at the Canton refinery, turned into gasoline and diesel fuel, distributed to tank farms and service stations in the region, and consumed by local consumers.

“The entire area benefits from crude that is produced here, refined here, distributed here and used here,” McKain says. “We see a lot of value with the Utica and Marcellus.”

Crude oil drawn from the Utica and Marcellus is much different than the “black gold” that once gushed in this region during the late 19th and early 20th centuries.

Condensate is a considerably lighter, lower-octane fuel that can be processed into a final product and sold in regional markets. So, it’s very likely that a portion of the fuel your pump into your vehicle’s gas tank was sourced from the Utica shale.

According to the Ohio Department of Natural Resources, 1,302 horizontal wells reported production during the second quarter. Together, these wells yielded 5.48 million barrels of oil over those three months.

The Marathon refinery is an enormous complex of towers and tanks connected by a network of steel pipes and tubes that, were it laid end-to-end, would stretch hundreds of miles.

The Business Journal participated in a daylong tour Sept. 29 of Marathon’s Utica system. This system includes its Canton refinery, a tank farm in East Sparta, its 42-mile Cornerstone Pipeline project, and its two MarkWest processing and fractionation complexes in Harrison County.

Last year, Marathon Petroleum acquired a controlling interest in MarkWest, one of the largest midstream oil and gas companies in the country. Over the last six years, that company has rapidly expanded its presence in the Utica shale, investing billions of dollars into new natural gas processing plants designed to convert natural gas and oil into finished products.

Dave Ledonne, vice president of operations for MarkWest’s Utica and Appalachia region, says the sprawling Cadiz and Hopedale cryogenic and fractionation plants separate the liquids from natural dry gas. Then they further process the liquids into saleable products such as butane, ethane and propane. Some 250 people work at MarkWest’s processing operations here.

One advantage MarkWest has over others in the market is its Cadiz cryogenic plant – where natural gas is chilled to 140 degrees below zero to separate methane from wet gas – has a process to remove liquid ethane from the gas stream. Ethane is the first commodity removed from the natural gas batch and is usually done at a fractionation plant, where the other liquids such as butane and propane are also separated.

MarkWest opts to remove the ethane before the gas reaches the fractionation plant. “If you have problems with a de-ethanizing tower, then your whole fractionator shuts down,” Ledonne explains.

Ethane is an important feedstock to the chemicals industry. It should become a commodity in high demand once projects such as Royal Dutch Shell’s $6 billion ethane cracker plant becomes operational early next decade. Cracker plants take ethane and convert it into polyethylene pellets, which manufacturers then use to produce thousands of everyday products.

“The cracker plant is like the end-game,” Ledonne says, noting the Ohio Valley has the potential to become another Mont Belvieu, the city in Texas along the Gulf Coast that is considered the nexus of the petrochemicals industry. “The challenge will be storage,” he continues, “but those plants are going to attract a lot of other facilities. It’s going to change the paradigm.”

Ethane, however, does not have an immediate impact on the Marathon refinery because it processes only condensate and some propane extracted from the Utica. Aside from gasoline and diesel, the refinery manufactures propane, propylene, kerosene, jet fuel, asphalt, roofing flux and some sulfur, McKain says.

Condensate yields from Utica wells are significant enough to convince Marathon to commit big investments into the Canton refinery, betting that the energy supply out of the Utica and Marcellus would continue steadily and strongly over the next several decades.

Among the more recent expansion is the addition of a condensate splitter at the refinery in 2014, which separates condensate from natural gasoline. The condensate is then blended with higher-octane crude that the refinery accepts from other sources.

“We bring in about 93,000 barrels a day of oil,” McKain reports. “That’s about two million gallons of gasoline a day. So if a car has a 20-gallon tank, then that’s 100,000 cars worth of gasoline we fuel every day.”

The condensate splitter is capable of handling 25,000 barrels of Utica oil per day, he says.

The refinery sits on 180 acres and employs 370, McKain says. Another 295 contractors are at the site every day.

On Sept. 29, the company commissioned its Cornerstone Pipeline, a 42-mile project that carries condensate from MarkWest’s stabilizer in Cadiz through a 16-inch diameter pipeline to Marathon’s tank farm in East Sparta, about eight miles south of Canton. The pipeline will be able to transport condensate directly from Cadiz to East Sparta, then via pipeline from that complex to Canton.

Once the oil is refined, it’s distributed to Marathon terminals in Steubenville, Youngstown and Wellsville.

It used to take about 130 truckloads of condensate a day to supply the Marathon terminal. The Cornerstone line, however, can push the oil directly to East Sparta and then on to Canton.

“We came up with the idea about four years ago,” says Jason Stetchschulte, commercial development manager for Marathon Pipe Line, a division of Marathon subsidy MPLX. “We wanted to move condensate out of the Utica and into the Canton refinery.”

Work on the pipeline began in March and the first batch of condensate started flowing Sept. 29. “This is the first step in a longer-term goal,” Stetchschulte says. “That goal is to connect the entire Midwest and supply the Canadian markets.”

Cornerstone plays an integral part in knitting together all of Marathon’s assets in the Utica, Stechschulte says. “We connect to the two largest condensate stabilizers in the Utica – one in Cadiz and the other in Scio,” he says.

The pipeline can transport 180,000 barrels of condensate per day, but Stechschulte says initial volumes will be well below that number. “We’ll be nowhere near pushing that capacity the first year,” he says.

MarathonExec

Pictured: Jason Stetchschulte, commercial development manager for Marathon Pipeline, displays bottles of condensate and natural gasoline produced from the Utica.

Cornerstone was built with additional capacity in mind, Stetchschulte says. “We have a big system here, so if and when volume picks up, we can get those volumes,” he says. “We’ve oversized this pipeline, like an insurance policy.”

Once the crude is shipped to East Sparta, it is transported eight miles to Canton through an eight-inch pipeline with the capacity to hold 45,000 barrels per day.

MarkWest selected Harrison County in the southern tier of the Utica to construct its processing plants because the most productive condensate wells are in those southern counties.

“If you look at ODNR data, Harrison, Carroll, Guernsey and Noble are the highest producing condensate counties,” Stechschulte says. “You build your infrastructure closest to where production is.”

The Cornerstone line is the first leg of a larger build-out that Marathon has planned for when oil and gas prices rebound, he continues. This expansion would include additional rail access, pipelines and truck and barge operations. However, the majority of condensate would most likely be shipped through pipelines, not rail or barge. “There is no safer way to transport condensate, gasoline, or any type of hydrocarbon,” he says.

In all, Stetchschulte estimates the scale of Marathon’s investment over the last two years – from installing the new condensate splitter, the Cornerstone Pipeline and the acquisition of MarkWest – well exceeds $1 billion.

“When it gets down to it, the source rock is there,” Stetchschulte says of the Utica. “Some of the largest natural gas wells in the world are coming from this area. We feel confident that when the market strengthens, there will be active drilling in the area and lots of product to fill the pipelines and the assets I’ve talked about.”

Pictured at top: Marathon’s refinery in Canton produces 93,000 barrels of gasoline and diesel fuel every day. About 25,000 barrels of condensate from the Utica is transported there daily.

Published by The Business Journal, Youngstown, Ohio.