Shale expo topic: Midstream operations

By Burton Speakman


As companies continue drilling within the Utica Shale, the next stage of development will be midstream operations, which focus on how to get the gas from the wellhead to the market.

Midstream was the topic of a discussion during the second day of the Youngstown Ohio Utica & Natural Gas Conference & Expo organized by the Youngstown/Warren Regional Chamber at the Holiday Inn in Boardman.

Midstream operations are critical to bringing natural gas and liquids to the market, said Scott Hallam, manager of development operations for Chesapeake Midstream Development. The midstream process includes the transmission of gas and its preparation for the market.

“The true value of the Utica Shale is in its rich nature,” he said. “It has ethane, propane and natural gasolines.”

These heavier, wetter gases currently sell for more than double the price of dry natural gas, the type used to heat homes, at market, Hallam said.

The expectation is that the two midstream plants being built in Columbiana and Harrison counties will handle much of the need for fractionation initially within the Utica Shale, Hallam said. The two plants represent a $900 million investment for Chesapeake, M3 Midstream Energy Company and EV Energy Partners.

Fractionation is a process of separating liquids from the dry gas.

The cryogenic processing facility in Columbiana County will have an initial capacity of 600 million cubic feet per day, he said. The natural-gas liquids will be sent to Harrison County, which will have a storage capacity of 870,000 barrels and fractionation capacity of 90,000 barrels per day.

Operations should begin about next June, Hallam said. More investment in fractionation will come later if the production matches the estimates.

One thing that will be critical in the Utica Shale is pipeline capacity, said Mark Butta, vice president of midstream for Rice Energy.

Ohio already has significant pipeline capacity due to gas companies. “But we’re just in the infancy at this point,” he said.

V&M Star will build pipeline in Youngstown that will be used for the smaller-diameter flow and production lines, said Dan Mihalik, V&M’s eastern regional sales manager.

The expectation is that there will be a lot of demand for this type of product.

“We’re really hopeful this is going to be a good time for us,” he said.

Once production starts, the hope is that plastics manufacturers who rely on products made from the wet natural gas come to the area, Mihalik said.

When responding to a question from the audience about concerns over what will happen to the new pipeline in 60 years after natural gas is no longer being excavated, both Butta and Hallam said companies use a higher-quality pipeline now.

All pipeline at this point is being built to handle the same high pressure used in transmission pipelines, Butta said.

Rail also will be an important part of the process, at least until pipeline infrastructure is developed, Hallam said. Many products also will be shipped by truck.

“Pipeline will always be the cheapest options,” Butta said.

Representatives from two rail companies, Christopher D. Ingraham, industrial development manager for Norfolk Southern Corp., and Ryan Fischer, assistant vice president for emerging markets for Genesee & Wyoming Inc., both said at this point, their employers primarily are shipping items for the drilling phase, particularly frack sand.

“This is an industry that works to be real nimble. They want to be able to move and change as market prices change,” Ingraham said.

Therefore, instead of making big capital investments in places to store materials, they might keep them on train cars, which generates greater flexibility but brings storage costs that are more than the product, he said.

Fischer said the rail companies are working with the companies in the shale industry to help reduce their costs and increase efficiency.

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