Source: http://www.ohio.com, December 9, 2012
By: Bob Downing
KENSINGTON: The hill tops in southwest Columbiana County off state Route 644 are under attack.
Construction equipment is turning a former farm two miles east of Kensington into a natural gas-processing facility that is to open by next May.
It is mostly a ground-clearing operation in Hanover Township so far, said spokesman David Mashek.
A shale boom is under way in Ohio: Land has been leased. Nearly 190 wells have been drilled. Natural gas, oil and other liquids are being pumped from Ohio’s liquids-rich Utica shale. But what happens next?
Ohio is looking at an investment in excess of $10 billion in processing facilities, pipelines and compression facilities — the so-called midstream projects — to get those commodities to market.
Seven processing-separation plants for natural gas plus liquids and four pipeline networks are under construction in eastern Ohio — with a price tag exceeding $7.2 billion. And that does not include interim facilities that are starting to pop up in Ohio.
There’s nothing in Ohio like what’s taking shape in Columbiana, Harrison, Mahoning and Noble counties.
In addition to the new plants, eastern Ohio is likely to see an additional $5 billion in new pipeline projects in the next few years because the state’s existing pipeline system is too old and too small to handle the volume of gas and liquids that energy companies are tapping into.
The energy companies are getting a little antsy by the delays in getting such infrastructure built in eastern Ohio because the wells are increasingly ready.
Some of the biggest Ohio drillers including Chesapeake Energy Corp., Gulfport Energy Corp. and EV Energy Partners have commented in third-quarter earning reports that delays in completing the new midstream facilities are keeping Ohio shale development from moving forward.
Production will ramp in Ohio sharply in 2013 as more midstream pipelines and processing plants are completed, said Chesapeake CEO Aubrey McClendon.
Gulfport CEO James D. Palm said getting pipeline right of way from landowners in Ohio has been slow and difficult and has delayed work by its partners.
That’s the main reason why only 41 wells in Ohio are in full production. Another 146 wells are drilled but not yet hooked up to pipelines and processing facilities.
Acquiring leases and drilling wells is known as the upstream end of the gas and oil business. Midstream operations begin with pipelines, gas-processing plants and fractionation facilities that separate liquids from dry gas.
Midstream development is essential to the next phase in shale oil-gas development, said Terry Fleming, executive director of the Ohio Petroleum Council.
“You can bring it out of the ground, but it doesn’t do you any good until you can move it and get it processed and get it where it’s needed,” he said. “Midstream is the key. It is critical.…It’s an infrastructure issue. You can only pull as much out of the ground as you can transport and process.…What’s happening in Ohio is big and it’s going to get bigger.”
Payrolls for Ohio midstream companies are expected to top $1 billion annually by 2014, according to industry estimates.
Ohio’s natural gas — it is mostly methane — requires more processing because it contains so-called natural gas liquids: butane, ethane and propane that are all lucrative after they have been removed from the natural gas. They are liquids below ground but are gaseous at the surface and are mixed with the natural gas.
Other impurities must also be removed from the natural gas before it can be pumped into large transmission pipelines. To be pipeline quality is the goal.
Three major gas-processing and fractionation projects are proposed in eastern Ohio: Columbiana-Harrison counties by three companies, Harrison-Noble counties by MarkWest Energy Partners LP and Mahoning County by two companies.
The Kensington plant is a key element in the $900 million project being developed by Utica East Ohio Buckeye, a partnership of three companies. It has been hailed as the largest integrated midstream service complex in eastern Ohio.
The companies involved are Houston-based M3 Midstream LLC (Momentum), Texas-based EV Energy Partners and Chesapeake Midstream Development.
But Oklahoma-based Chesapeake Energy, the No. 1 player in Ohio’s Utica shale, has sold its interest to Global Infrastructure Partners for $2 billion, although the deal has not yet closed. The Chesapeake subsidiary was sold to help reduce the parent company’s $14 billion in debt.
The complex will consist of natural gas gathering and compression facilities at Kensington, plus processing, natural gas liquids fractionation, loading and terminal facilities at Scio in Harrison County, said M3 Midstream vice president George Francisco.
The two plants will be built and operated by M3 Midstream. The system of 200 miles of gas-gathering pipelines will be built by Cardinal Gas Service for Chesapeake Midstream and its partners. That will cost $1 billion.
The plants — about 40 miles apart — will be connected by a 12-inch pipeline to carry natural gas liquids to Scio, in addition to a 24-inch high-pressure gas-collection line.
Kensington will be a state-of-the-art cryogenic processing plant capable of handling 800 million cubic feet per day. It relies on low-temperature distillation with the gas cooled to minus 120 degrees Fahrenheit.
The plant will remove natural gas liquids such as propane from the gas and deliver pipeline-quality natural gas to the distribution network via the Kinder Morgan Energy Partners LP Tennessee gas pipeline. That pipeline network runs from Texas to New York City and Boston. It can handle up to 7.5 billion cubic feet of natural gas per day. It runs across southeast Ohio from Portsmouth to near East Liverpool. The plant can also connect to a Dominion East Ohio’s TPL 15 pipeline.
Such plants are found in Pennsylvania and West Virginia, but it is a new and larger breed of gas-processing facilities for Ohio. Several additional plants could be built in Ohio in the next few years, industry officials said.
The $400 million Kensington complex will take 200 to 300 construction workers to build the plant.
It should be completed and in operation by May.
The complex will employ 20 to 30 full-time workers.
The 117-acre site was acquired for $1.8 million.
The Scio plant on about 100 acres will include a 90,000-barrel-per-day fractionation plant, plus a storage facility.
The complex off state Route 151 southwest of Scio in North Township will include an 870,000-barrel storage facility plus rail-loading facilities.
The liquids — ethane, butane and propane — will be shipped from the complex via pipeline, rail and truck.
What is dubbed the Harrison Hub is due to open by May.
The $500 million plant will employ 300 to 400 construction workers. It will employ 25 to 30 workers. That excludes the rail operations.
Last week, Genesee & Wyoming Inc. announced that its wholly owned subsidiary, the Columbus & Ohio River Rail Road Co., has signed a long-term agreement to haul natural gas liquids from Scio.
The rail agreement was signed with Utica East Ohio Midstream LLC.
The railroad will construct a new 1-mile rail siding and rehabilitate a 3-mile storage track.
Plans call for shipping 10,000 carloads of natural gas liquids from Scio annually.
Until the Scio plant opens, the new operation will benefit from a recent $2 million expansion of the railroad’s main rail yard in Newark.
That was funded by a public-private partenrship between the railroad and ther state of Ohio.
The Newark expansion will facilitate the sorting of 100,000 rail cars per year for more than 80 customers and will serve several proposed Utica shale projects along the rail line, officials said..
Dominion Resources Inc., a subsidiary of Dominion, has signed an agreement with M3 to hook up Utica wells and to transport the gas to the Kensington plant. That pact calls for up to 180 million cubic feet per day coming from Dominion Resources.
To date, Chesapeake Midstream has built 45 miles of Utica-related pipeline in Ohio in 2012, said spokesman Pete Kenworthy.
In 2013, additional gathering lines will be constructed to connect wet and dry gas production sites to third-party pipelines and processing plants, he said.
Further to the south, Colorado-based MarkWest has plans for its own gas-processing facilities in Harrison and Noble counties.
Its subsidiary, MarkWest Utica EMG LLC,, signed an agreement to develop the midstream project with the Texas-based Energy & Minerals Group.
Starting in mid-November, it started up an interim processing facility in Cadiz in Harrison County. The refrigeration system can handle up to 60 million cubic feet of natural gas per day.
Two new cryogenic processing plants are under construction in Cadiz. Together they will be able to handle up to 325 million cubic feet of natural gas per day.
The first unit could begin operations in January and the second unit in September.
What’s planned for Phase 1 is a $500 million plant in the village of Cadiz’s industrial park, said Randy S. Nickerson, MarkWest’s senior vice president and chief commercial officer..
The company paid about $1 million for the 207 acres and purchased an old bank building for its regional office.
The MarkWest team has signed a contract with Oklahoma-based Gulfport Energy Corp. to process natural gas and liquids from its Ohio wells.
The company has drilled 12 Ohio wells and has two more in the works. It intends to add 50 new Ohio wells in 2013. It has the three top-producing wells in Ohio in Belmont and Harrison counties.
MarkWest has provided Gulfport with a small temporary processing plant at one high-producing well in Harrison County in order to begin production.
The Harrison County complex in Cadiz will also include a de-ethanization facility where ethane will be removed from the gas stream and delivered into the new ATEX Express ethane pipeline. That pipeline will run 1,230 miles from Pennsylvania to the Gulf Coast and is under construction in Ohio.
That facility, capable of handling 40,000 barrels per day, is slated to begin operations in first quarter 2014.
The propane and heavier natural gas liquids will then flow via pipeline to a new Harrison County fractionation plant for further separation. It would be located in Harrison County but not in Cadiz.
That plant will be capable of handling 60,000 42-gallon barrels per day. It would open in early 2014. A marketing facility would be added.
On Nov. 6, MarkWest Utica EMG and Colorado-based Antero Resources announced plans for a new gas-processing plant in Noble County.
Initially, MarkWest Utica will operate an interim refrigeration natural gas processing plant at its Seneca processing complex, to be built on 200 acres near Summerfield. It will be capable of handling up to 45 million cubic feet per day. It is slated to be completed in the second quarter of 2013.
That will be followed by the new Seneca I, a cryogenic gas processing facility capable of handling 200 million cubic feet per day. That is expected to be in operation by the third quarter 2013.
The agreement also calls for Seneca II, a 200 million-cubic-feet-per-day cryogenic facility that could open in late 2013.
Antero has leased about 60,000 acres in Ohio. It is running one drilling rig and plans to add a second rig next year. It has permits for five wells in Noble and Monroe counties.
Initially, the Noble plant was to have been located in Monroe County.
MarkWest expects to have constructed 60 miles of steel-coated pipelines in Harrison, Guernsey and Belmont counties by the end of 2012. It expects to be up to 140 miles by the end of 2014. Antero is building the needed pipeline in Noble County.
Before the completion of the fractionation complex in Harrison County and associated pipelines, Antero’s natural gas liquids processed in Noble County may be transported to either the company’s Houston, Pa., fractionation and marketing complex (the largest facility of its kind in the Marcellus shale) or its Siloam fractionator in South Shore, Ky.
MarkWest says it has invested $2 billion in the last four years in the Marcellus shale in Pennsylvania and West Virginia.
In Mahoning County, NiSource Gas Transmission and Storage’s Midstream and Minerals Group LLC and its partner, privately owned Hilcorp Energy Co., have announced plans to spend between $1 billion and $1.5 billion on a new Utica processing network: the Hickory Bend project.
That includes a $300 million pipeline that runs through Mahoning County and a natural gas processing plant at an unspecified location in eastern Mahoning County, said spokeswoman Chevalier Mayes.
The 50-mile gathering pipeline for wet gas would run through northeast Ohio and northwest Pennsylvania. The pipeline — from 20 to 24 inches in diameter — would handle up to 400 million cubic feet of natural gas per day.
The cryogenic natural gas liquids processing plant should be completed in the third quarter of 2013 and would handle up to 200 million cubic feet of natural gas per day, NiSource president John Bonn said at a September shale meeting in Youngstown.
NiSource Midstream is a subsidiary of Indiana-based NiSource Inc., the parent company of Columbia Gas. Hilcorp is based in Houston, Texas, and has one investor, Jeffrey Hildebrand. Together they have created Pennant Midstream Services LLC to build the pipeline and plant.
The two companies are also undertaking a joint venture to drill natural gas wells in the Utica shale with Hilcorp operating the combined 100,000 acres, Mayes said.
The pipeline and plant, to be operated by NiSource, will be marketed to other drillers, she said.
The wet gas-gathering system is expected to start initial service by the first quarter of 2013 and the processing complex will be online by late third quarter 2013.
Said Joseph A. Blount, president and COO of NiSource Midstream and Minerals Group and president of Pennant Midstream LLC: “We are off to a great start on the Pennant project.”