A recent article from industry publication RBN Energy took a broad look at the state of Energy Transfer’s Pennsylvania assets, specifically the Mariner East pipelines and Marcus Hook Industrial Complex, which has helped to move the Commonwealth into one of the nation’s leading energy producers.
The authors praise the Mariner East 1, 2, and (coming) 2X as being large-scale conduits to provide export opportunities to the Midwest, Texas, and Northeast for a variety of natural gas derivatives and potentially gasoline and diesel for 2X to create something of a trifecta of pipelines in the Commonwealth.
Ultimately, Energy Transfer has the luxury of choice in determining how to optimize the resources and volumes of product in the Mariner East system as well as deliberations to be made on the markets the company wants to tap through the Marcus Hook Industrial Complex. No matter the outcome it seems that the people and businesses of the Commonwealth will continue to benefit from private investment in the Marcellus and Utica shale reserves.
The full article below:
Energy markets are constantly changing, but pipelines can take years to complete, and once they’re in the ground, that’s where they stay. Therefore, it’s critical for midstream companies to build as much flexibility as possible into their plans for new pipelines and other infrastructure, because you never know what the markets for crude oil, natural gas, NGLs and refined products might have in store. Energy Transfer apparently has that flexibility in mind as it’s been building out its Mariner East pipeline system across Pennsylvania to the Marcus Hook Industrial Complex (MHIC) near Philadelphia. Today, we consider recent developments regarding these key midstream assets in the Northeast and their still-evolving uses.
As we said in Between Mont Belvieu and the Deep Blue Sea and One of a Kind, the combination of Energy Transfer’s Mariner East system and MHIC helps to balance the Northeast’s LPG and ethane markets. It gives shippers the option of piping large volumes of NGL products from Marcellus/Utica production areas and fractionators in western Pennsylvania, eastern Ohio and northern West Virginia to Marcus Hook, where they can be loaded onto special LPG and ethane carriers and sent to faraway international markets, or distributed to help meet local demand. The 70-Mb/d Mariner East 1 (ME1; blue line in Figure 1), a mostly 8-inch-diameter pipe that has been in service since 2014 for propane and 2016 for ethane, runs from Houston, PA, to Marcus Hook. Mariner East 2 (ME2; yellow line) runs from Scio, OH, to Houston (PA), and from there to Marcus Hook; ME2 came online in late December 2018. While ME2’s design capacity is 275 Mb/d, the need to temporarily employ a smaller, existing 12-inch-diameter pipe along a short section of the 20-inch-diameter pipeline as a workaround has limited its current capacity — we figure that ME2 is moving about 160 Mb/d. (More on this in a moment.) The pipeline’s full, 275-Mb/d capacity is expected to be available sometime next year. Energy Transfer also is in the final stages of building Mariner East 2X, (ME2X; dashed green line) another Scio-to-Houston-to-MHIC pipeline (this one 16 inches in diameter) that is scheduled to enter service in the fourth quarter of 2019. (Again, more on ME2X in a sec.)
In addition to the volumes received at Marcus Hook on the Mariner East system, LPG can also be transported to the Philly-area terminal via truck, rail and the Enterprise Products Pipeline System (better known as TEPPCO; mauve line), which runs from Texas’s Gulf Coast to various points in the Northeast, including MHIC. In the Pre-Shale Era, most of the LPG on TEPPCO was sourced from the Gulf Coast, but these days most of the propane that moves east/northeast on TEPPCO into the Northeast comes from Utica production areas — that LPG can serve both domestic markets in the Northeast as well as the export market via Marcus Hook.
As for MHIC itself, the facility (orange pentagon in Figure 1 and aerial photo below) — located at the 800-acre site of an old Sun Oil refinery — can receive, store and send out ethane, LPG and heavier NGL products such as natural gasoline and light naphtha. It has about 5 MMbbl of NGL storage capacity on-site, including 2 MMbbl of pressurized underground storage (granite caverns, in place for decades under the refinery that was there), and 3 MMbbl of refrigerated above-ground storage (numbers 10, 11, 12 and 13 in photo). There’s also one de-ethanizer (number 5), two de-propanizers (numbers 17 and 18) and one de-butanizer (also number 17) to fractionate ethane, propane, butanes, natural gasoline and other products when two or more of these are sent through the Mariner East system as a mix, or trucked or railed in. MHIC’s docks and equipment can load LPG onto Very Large Gas Carriers (VLGCs) or smaller LPG carriers, and can also load ethane onto Very Large Ethane Carriers (VLECs).
According to Energy Transfer’s second-quarter earnings call on August 8, the Marcus Hook terminal has been receiving an average of about 300 Mb/d of NGLs (ethane, LPG, natural gasoline etc.) the past few months, with the existing Mariner East system (ME1 plus ME2) transporting 230 Mb/d of that total since ME1 resumed service in late April after a three-month outage caused by a sinkhole and other issues. If we assume that the ethane/propane-carrying, 70-Mb/d ME1 is running at close to full capacity, that would leave about 160 Mb/d moving through ME2 (utilizing the 12-inch workaround pipe we mentioned above). As for exports, ethane volumes out of Marcus Hook have averaged 32 Mb/d over the past 12 months, though there have been ups and downs over that period, such as zero exports in March and April during the ME1 outage and 69 Mb/d in exports in July (green bars in left graph in Figure 2), according to RBN’s NGL Voyager report. The combination of propane and butane exports out of Marcus Hook in the May-through-July period (again, according to NGL Voyager) averaged 200 Mb/d (yellow bars in right graph in Figure 2), or about 40 Mb/d above the LPG volumes flowing into MHIC on ME2 and 40 Mb/d below what we believe to be the terminal’s current LPG export capacity. [The terminal’s early-August export numbers slipped a bit, but we expect them to rebound by month’s end.]
In its earnings presentation a couple of weeks ago, Energy Transfer said that it expects Marcus Hook’s LPG export capacity to increase to 280 Mb/d (from our current estimate of 240 Mb/d) next year; its ethane export capacity will stay at 65 Mb/d. Next year, the company also expects to bring ME2 to its full design capacity of 275 Mb/d. If you crunch the numbers, it seems when those higher capacities on ME2 and Marcus Hook kick in, ME2 would be able to supply MHIC with virtually all of the propane and butane it would need to run the LPG side of the export terminal at full capacity. (Trucks, railroads and TEPPCO may well send even more LPG Marcus Hook’s way.) Similarly, ME1 could supply MHIC with all the ethane it would need to operate the ethane side of the terminal on all cylinders too.
So, you might ask, if ME1 and ME2 are all Marcus Hook needs to max out its export capacity for those commodities, what’s the soon-to-be-available pipeline capacity on ME2X going to be used for? (As we said, the new pipe is expected to come online late this year.) There are a number of options, all of which Energy Transfer has teased about. For one, it could step up its marketing of LPG to domestic (U.S.) buyers along the pipeline’s 350-mile route, or out of Marcus Hook. The company has said it already is adding Mariner East offtake points in central and eastern Pennsylvania to serve the Harrisburg, Reading and Greater Philadelphia areas. By the end of this year, a pipeline spur off ME1 will be supplying ethane to a new, 1,050-megawatt power plant (the CPV Fairview Energy Center; purple icon in Figure 1) in western Pennsylvania’s Cambria County that will be fueled by a mix of natural gas and ethane. Also, Energy Transfer could further expand MHIC’s LPG and/or ethane export capacity (they’ve said there’s room), then use ME2X to transport additional product volumes to the terminal. And then there’s the possibility of developing projects at Marcus Hook that would consume purity products, such as a propane dehydrogenation (PDH) plant or an alkylation unit, which uses isobutane as a feedstock to produce a high-octane gasoline blending component called alkylate (see You Can Just Iso My Butane).
Perhaps the most intriguing option, though, would be using ME2X to transport refined products like motor gasoline and diesel. As we discussed earlier this summer in Perfect World, Buckeye Partners for a few years now has been working to advance its plan to allow bi-directional flows on the western part of its Laurel Pipeline (a now westbound-only refined-products pipe between the Philly area and Pittsburgh) so more gasoline and diesel from Midwest refineries could be delivered to markets in central Pennsylvania, Maryland and eastern West Virginia. The case for transporting more refined products east was bolstered by the recent closure of Philadelphia Energy Solution’s 335-Mb/d refinery after a devastating fire.
We should note that these aren’t binary, one-or-the-other choices that Energy Transfer needs to make regarding the use of ME2X — or ME1 or ME2, for that matter. What the company has (or rather, soon will have) are three side-by-side pipelines of various diameters and capacities whose use it can optimize and revise over time as market conditions warrant. That kind of flexibility is a good and valuable thing, and it will be interesting to watch what Energy Transfer does with it.