Gas Infrastructure Build-Out Driven by Marcellus Production Surge

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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Dramatic gains in Natural Gas Production in the Marcellus Shale have led to billions of dollars in planned investments in pipelines, midstream facilities and terminals in the surrounding region, according to Industrial Info's North American Industrial Project Database.

"Right now, we're seeing a bit of a gold rush around the Marcellus to not only get the gas out of the ground, but to build the infrastructure to process it, transport it, store it and utilize it," said Jesus Davis, Industrial Info's vice president of research for the Oil & Gas Production, Pipelines and Terminals industries. "We don't expect all of these gas-related or gas-dependent projects to kick off as scheduled. But the extraordinarily high level of planned project activity, coupled with recently completed projects, shows the positive multiplier effect of advanced technology and low resource costs."

The surge in oil and gas production from unconventional drilling has had positive spillover effects for a number of industries, in addition to companies that extract, process, transport or store hydrocarbons, said Michael Bergen, Industrial Info's executive vice president. The industries benefitting from the U.S. renaissance of oil and gas production include Metals & Minerals, Power, Chemical Processing, Industrial Manufacturing, and others. For more on this, see May 21, 2014, article - North American Industrial Project Spending to Exceed $400 Billion in 2014, and May 20, 2014, article - Marcellus Gas Transforms Chemical Processing, Gas Production Industries.

Natural gas production from the Marcellus Shale, which lies underneath Pennsylvania, New York and West Virginia, currently is slightly more than 14 billion cubic feet per day (Bcf/d), according to the Marcellus Drilling Productivity Report prepared by the U.S. Energy Information Administration (EIA) (Washington, D.C.), the statistical and analytic branch of the U.S. Department of Energy (DOE) (Washington, D.C.). That means the Marcellus accounts for about 20% of the U.S. natural gas production. May's production from the Marcellus represents an increase of about 254 million cubic feet per day (MMcf/d) over April's production. Gas production from that formation has more than doubled over the last two years, the EIA reported.

Click on the image at right for a graphic showing the dramatic gains in gas production from the Marcellus Shale.

Industrial Info is tracking 47 active Natural Gas Pipeline projects under development in the Mid-Atlantic and Northeast regions worth $2 billion. Another 14 Terminals projects have been proposed in that area, valued at about $71 million. And 29 midstream projects have been proposed in those two regions, valued at about $3.2 billion. This last category includes two gas-to-liquids (GTL) projects valued at about $1.2 billion, which skews the project values for midstream projects.

Some of the largest gas projects that are being developed in the Mid-Atlantic and Northeastern regions include:

• The Sinking Springs grassroot gas-to-liquids (GTL) production plant, a $1 billion project scheduled to be built in southeastern Pennsylvania. That project, scheduled to kick off in mid-2016, is being developed by EmberClear Corporation (Calgary, Alberta).
• Natrium Natural Gas Liquids Fractionator Phase II Expansion, a $425 million project in West Virginia scheduled to begin turning dirt this summer. Blue Racer Midstream LLC (Dallas, Texas), a unit of Dominion Resources Incorporated (NYSE:D) (Richmond, Virginia), is developing that project, which is slated to be brought online in early 2015.
• Sherwood Cryogenic Gas Processing Plant Expansion Phase VI, a $350 million project slated for West Virginia. This expansion project, scheduled to kick off by the end of 2014 and to be brought online in early 2015, is being developed by MarkWest Energy Partners LP (NYSE:MWE) (Denver, Colorado).
• Lock Haven Atlantic Sunrise grassroot natural gas pipeline expansion (South), a $183 million, 122-mile intra-state project within Pennsylvania being developed by Transcontinental Gas Pipe Line Corporation LLC (Houston, Texas), a unit of Williams Companies Incorporated (NYSE:WMB) (Tulsa, Oklahoma). This project is scheduled to kick off in mid-2016 and be operating by mid-2017.
• Binghamton Williams Constitution grassroot natural gas pipeline, a $125 million project also being developed by Transcontinental Gas Pipe Line Corporation. This project, scheduled to kick off in late 2015 and become operational in early 2017, is a 98-mile pipeline that will cross three New York counties.
• Butler Atlantic Access grassroot natural gas pipeline lateral, a $120 million project also being developed by Transcontinental Gas Pipe Line Corporation. This project, slated to begin turning dirt in about a year, is an 80-mile pipeline extension across four Pennsylvania counties.
• Chatham Virginia Southside grassroot natural gas pipeline loop expansion is another project being developed by Transcontinental Gas Pipe Line Corporation. A $115 million project scheduled to kick off this summer and be complete by August 2015, this pipeline is scheduled to transport up to 250 million cubic feet of gas per day (MMcf/d) across a 91-mile stretch of southwestern Virginia.
• Morrisville grassroot natural gas pipeline, a 75-mile line across New York that is scheduled to kick off later this year and be operating by August 2015. This project, valued at $115 million, is being developed by Emkey Companies (Erie, Pennsylvania).

Click on the image at right to see forward price curves for gas at Henry Hub, New England, and the New York/Pennsylvania/New Jersey markets.

Businesses and homeowners in Pennsylvania, New York and New Jersey will be the main near-term beneficiaries of this infrastructure build-out, EIA said, adding that outbound transportation from the Marcellus is expected to grow by at least 3.5 billion cubic feet per day (Bcf/d) by 2015. Nearly 2 Bcf/d of that new capacity is expected to be brought online in time for this winter heating season. But businesses and homeowners in New England will have to wait until 2016 to begin experiencing the benefits of the Marcellus' surge in production, the agency added.

By actively expanding the natural gas infrastructure serving Pennsylvania, New York and New Jersey, developers have helped keep gas prices low in that region. But it's a different story in capacity-constrained New England, and that difference is shown in forward price curves for gas collected by the EIA. Prices in Pennsylvania, New York and New Jersey closely track the national benchmark at Henry Hub, Louisiana. But gas costs in New England spike each winter.

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Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, three offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.