No, this is not the Whoville located south of Mt. Crumpit within the mountainous high range of Pontoos. And there is no Grinch in this Houville, at least during the 2012 Christmas season. Instead, this Houville is the center of an emerging Marcellus/Utica based NGL hub soon to take its place among the largest in North America.
Over the next couple of years, almost 500 MB/d of new fractionation capacity will be built in the region, and it will start filling quickly. Sometime in 2016 or sooner, Houville will blast past Conway as the second largest Y-grade hub in the country, exceeded only by Mont Belvieu. That’s a big deal. So we need to spend some time understanding what is happening in this Houville, the big new NGL hub in Marcellus/Utica.
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By the end of 2014, the northeastern U.S. will go from about 100 MB/d of NGL fractionation capacity to nearly 600 MB/d. That’s because wet gas production is growing by leaps and bounds in both the Marcellus and Utica. And just like we saw in Mont Belvieu (see Ready, Set, Go), the processing, transportation and fractionation infrastructure is trying desperately to keep up. Producers are aggressive and willing to partner with midstream companies to ensure their production is interrupted as little as possible. The vast majority of these midstream deals are supported by long term fee based agreements.
And also like Mont Belvieu, the sooner players get there, the better. There are lots of producers waiting anxiously to maximize netbacks on their production of NGLs, some of which is ethane now being rejected, or other products being transported long distances for fractionation, storage or simply to find a market. Remember, NGL’s aren’t of much value until they are fractionated (i.e., split) into purity products: ethane, propane, normal butane, isobutane, and natural gasoline. There is a very long history of processing and fractionation in the region, but nothing like the scale of what is happening now. We’ll get into those big developments in a minute.
But first, we better explain Houville. Like other NGL hubs, the fractionation facilities that have been and are being constructed in the Marcellus/Utica region are geographically concentrated. In this case it is not because they are sitting on a salt dome or bedded salt formation (like Mont Belvieu or Conway) but because they are in the general vicinity of the most prolific wet gas plays and gas processing plants. The area actually covers parts of three states – southwestern Pennsylvania, northern West Virginia and eastern Ohio. See the Bentek map below where the major fractionation facilities are shown. We have also noted Houville - the red oval. It is a region that encompasses all of the major fractionators in the region. The area is less than 50 miles from southwest to northeast, from Moundsville, WV, northeast to Majorsville, WV and then further north to Houston, PA. Since we don’t know of a local name for the whole region, and in the Christmas spirit, it seems only logical to name it after Houston and the two “villes”. Thus Houville. Our Houville oval also extends into Ohio to pick up the fractionation facilities at Harrison, OH.
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The Whos (The Hous doesn’t look right, does it?)
Market dynamics are unique up in Houville, and due to that and the long history of the region there are a different cast of midstream players. So who are the Whos – the companies that populate Houville? It is a land of extremes. On one hand you’ve got companies like Dominion that have been processing Appalachian gas for more than a century (see the 100 year old picture of the Hastings plant in We Don’t Need Ya Anymore). That gas was traditional Appalachian production that has been around since soon after Colonel Drake. Literally. Some of the wells up there have been producing for 100 years. At the other extreme is Caiman, founded in 2009, landed in Houville soon thereafter and sold by Caiman Eastern Midstream to Williams in April 2012 for $2.5 billion. Those Whos are industrious. Other major players in the region include midstreamers Markwest and Enterprise. The Marcellus/Utica producing side includes Range Resources, Chesapeake, Antero Resources, CONSOL Energy, Equitable Resources, and Chevron (purchased Atlas Energy late in 2010).
Historically a lot of the traditional Appalachian production was dry gas, produced into low pressure systems. The wet gas that did exist was used to produce liquids that were mostly consumed locally. And there was no ethane to speak of, which remains the situation today. Most NGLs were recovered in ancient gas processing plants, with the propane, butanes and natural gasoline split at ancient fractionators. It was its own little world, with its primary interaction with the other regions of the country via seasonal inflows of propane on the Enterprise TEPPCO pipeline. Like other localized NGL markets we’ve discussed here (e.g. West Coast) the players are highly dependent upon each other. Nearly every facet of the supply chain has to come together to make things work productively.
Starting Small and Getting Big
Before we get into the details about how big Houville is going to be, we first need to put the current situation into perspective. Right now it is tiny. Like a speck of dust on a clover leaf. How small is it really? Well, total NGL production in PADD I (as defined by the Energy Information Administration – EIA) year-to-date 2012 (Jan-Sept) has averaged 43 Mb/d. That is a miniscule 1.2% of total U.S. production, which has averaged about 3,400 Mb/d this year. The Gulf Coast (PADD III) produces more NGLs each hour than PADD I does in a day. PADD I is even smaller than PADD V, that isolated island of NGLs on the West coast.
The map below on the left shows the regional breakdown used by EIA for their collection of NGL production data. The area generally called the ‘Northeast’ consists of PADD I, itself made up of two refinery districts: Appalachian No. 1 and East Coast. Complicating matters is that the Utica play extends well into Ohio, a part of PADD II, refinery district Indiana-Illinois-Kentucky. But for now don’t worry about all that. The two main points you need to know are:
#1 - Today almost all wet gas production is coming from the Appalachian No. 1 region, and the number is small.
#2 - That production is projected to grow at the astronomical rate shown in the graph below on the right. Up to more than 450 Mb/d. By 2017, about 30% of that volume will come from the Utica, with much of that volume coming from the Ohio PADD II side. The rest is Marcellus.
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In that year (2017), Y-grade processed in Conway has been projected by Bentek to be just over 400 Mb/d. So if this forecast happens, the Northeast region will process more Y-grade than Conway. And where is all of that volume going to be fractionated? Houville, of course.
Houville Fractionation is Different
Fractionation has a bit of a different meaning in the Northeast than in Mont Belvieu or most other NGL hubs. It has evolved differently because of legacy market conditions and because of how transportation options are developing now. As mentioned above, historically there has been no ethane market in the Northeast. Gas plants have rejected ethane so that it ends up in the residue gas stream. We’ve talked about that in Too Much Marcellus/Utica NGL Pipeline Capacity. For that reason, the existing Fractionators in the Northeast only needed to split propane, butanes and natural gasoline. Thus the fractionators were designed as C3+ fracs.
That situation is still with us today and will be until there are pipelines available to move ethane to market – Mariner East to Sarnia, ON (50 Mb/d; July 2013) , and Enterprise ATEX to Mont Belvieu (190 Mb/d; first quarter of 2014). And let’s not forget that the Mariner West project is designed to take both propane and ethane east to Sunoco’s Delaware River marine port for shipment to overseas markets (65 Mb/d capacity, first half 2015 fully operational; Range Resources has committed to 20 Mb/d each of ethane and propane capacity.)
With no way to move ethane out of the region for at least another six months, most of the fractionators have been constructed just like they have in the past – as C3+ facilities. Separately deethanization facilities are being constructed at both gas plant and fractionator locations, and will come online only when they are connected to one of the two ethane outlets. So the big difference between Houville and other fractionation centers is a separation between C3+ units and the C2 deethanizers.
Further complicating the Houville situation is the large percent of ethane in a lot of the Marcellus and Utica Y-grade. In the conventional gas processing world, that percentage has historically been somewhere in the mid to high 40%s. In the Marcellus/Utica (and some of the other shale plays) it is in the 50%s and sometime the 60%s. That’s a lot of potential ethane.
Houville Today and Tomorrow
Today there is about 130 Mb/d of fractionation capacity in Houville and the rest of PADD I, made up of several very small legacy facilities, a couple of larger legacy fracs in West Virginia (including Dominion Hastings mentioned above with about 14 Mb/d capacity), the big MarkWest fractionator in Houston, PA (60 Mb/d) completed in 2011, and the first piece of the Williams/Caiman Moundsille plant that started up in April 2012 (12.5 Mb/d). Yes, that does mean that there is 130 Mb/d of capacity for 43 Mb/d of NGL production.
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Regardless of the excess of capacity today, a lot more capacity is on the way. The chart above shows the 11 projects scheduled to come online over the next two years. The numbers are based data from Bentek’s NGL Facilities Databank. Williams/Caiman Moundsville II (30 Mb/d) and Dominion Natrium (36 Mb/d) are scheduled to be operational before the end of this month (12/2012). We’ve heard that one or both of these projects may take a little longer to get finished.
In June 2013 MarkWest has deethanizers coming online at Houston and Majorsville, both 38 Mb/d. That’s also the month that the Chesapeake/M3/EV in Harrison, OH is scheduled to begin service, as is the MarkWest/ Utica plant, also in Harrison. Note that Chesapeake/M3/EV was announced at 90 Mb/d and all of that capacity is shown in service as of June 2013. It is understood that all of this capacity will probably not come on at the same time, but instead will be staged out as needed over two or three years. MarkWest Utica is announced at 100 Mb/d.
In September 2013, Williams/Camian will bring on the Ft. Beeler deethanizer (30 Mb/d) and Dominion will expand Natrium (23 Mb/d).
In June 2014, MarkWest will add 38 Mb/d of deethanization to Majorsville.
About Some of the Houville Projects
The development of Houville is a major step for the NGL market in general, and the extended PADD I market (PADD I + Ohio) specifically. Capacity is growing by leaps and bounds, and NGL production is expected to ramp up quickly. But will it be enough to fill all that fractionation capacity? And how long will it take? Just looking at the numbers above, fractionation capacity gets to almost 600 Mb/d in a couple of years while production only reaches 450 Mb/d in 2017. Is the Grinch waiting for next Christmas to pounce on the Midstream Whos of Houville? We’ll just have to wait and see, won’t we.
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