Natural Gas Intelligence
Economics Replace Supply Concerns for Marcellus Ethane

Monday, March 26, 2012

Can Appalachia support all of the ethane projects proposed for the region? Potentially, but economics could play a much more decisive factor than supply over the coming decade, experts said last week at the Hart Energy Marcellus Midstream Conference and Exhibition in Pittsburgh.

With two pipelines in the works, an overseas shipping option under discussion and tentative plans for a world-scale cracker in the region, "There is no longer an ethane problem in the Northeast," according to Kristen Holmquist, manager of natural gas liquids for Bentek Energy LLC. The question now is whether production levels will allow all four projects -- and possibly others -- to co-exist in the near term.

At current prices, the internal rate of return in the wet gas corridor of the Marcellus is lower than other liquids-rich shale plays across the county, but it's still above 40%, "not too shabby," Holmquist said. But many of those other plays also include shale oil, making the Marcellus more susceptible to changes in pricing from natural gas and natural gas liquids. For instance, if natural gas liquids prices hypothetically hit zero, the return from the wet gas corridor of the Marcellus would turn negative, while the Niobrara, Bakken and Permian would barely change. If natural gas prices hypothetically hit zero, the wet gas Marcellus would still earn a nearly 20% internal rate of return, compared to the 35-55% from other plays.

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