MOUNDSVILLE - Recent declines in the price of ethane will not stop Dominion Resources and natural gas drillers from capitalizing on northern West Virginia's Marcellus Shale, industry leaders agree.
Tuesday, officials with Virginia-based Dominion announced the activation of the company's Appalachian Gateway Project, which will send gas from the Ohio Valley to markets along the Eastern Seaboard. The pipeline project consists of 110 miles of 20-inch, 24-inch and 30-inch diameter pipeline.
"The Appalachian Gateway Project will transport natural gas produced in West Virginia and southwest Pennsylvania to where it can be sold to customers in the Northeast and Mid-Atlantic," said Thomas F. Farrell II, chairman, president and chief executive officer of Dominion. "Combined with our Gathering Enhancement Project, Dominion invested more than three-quarters of a billion dollars to increase the flow of natural gas in the area. This should greatly benefit the regional economy."
The enhancement project included upgrades in Dominion's gathering pipelines and compressor stations; increased daily capacity by 50 million cubic feet per day; and allowed for the expansion of Dominion's Hastings Extraction Plant in Pine Grove.
This project is officially separate from the company's ongoing construction of the $500 million processing plant at Natrium, but Dominion spokesman Charles Penn said the entire pipeline network is interconnected. The Natrium center is scheduled to open later this year to separate the "dry" methane portion of the gas stream from the "wet" ethane, propane, butane and pentane portions.
"We continue to work towards a December completion on the Natrium natural gas processing and fractionation plant, providing capacity to process 200 million cubic feet of natural gas per day and fractionate 36,000 barrels of natural gas liquids per day," said Farrell.
A company such as Chesapeake Energy - which has agreed to supply the Dominion Natrium plant with its gas stream - is known in the industry as a "producer" because it sells the gas that it pumps out of the ground. Because the wet gas requires processing before it can go to market, Chesapeake and other producers send their gas to companies such as Dominion, Williams Partners (formerly Caiman Energy) or MarkWest Energy for processing. The separated gas products are then ready for use, with the ethane possibly going to a cracker plant somewhere in North America.
Penn said a decline in ethane prices - which officials said are down roughly 60 percent from July 2011 levels - should not have any impact on Dominion's work.
Earlier this year, Chesapeake officials said that company gains as much as $38,800 per day from wet wells that contain ethane and other liquids, compared to $13,000 per day from a well that contains only methane. Consequently, Chesapeake and other companies have been focusing more on the wet gas areas of Ohio, Marshall and Brooke counties in West Virginia, as well as counties in eastern Ohio.
Despite the declining ethane prices, Corky DeMarco and Charlie Burd believe Chesapeake and other drillers will keep boring plenty of wells in the Upper Ohio Valley.
"I don't think production will slow down in the wet zone," said DeMarco, executive director of the West Virginia Oil and Natural Gas Association. "The people who are drilling up there have made very substantial long-term commitments."
"The price of ethane is like the price of any commodity - it goes up and down. I think the companies are smart enough to account for this in their business plans," he added.
Burd, executive director of the Independent Oil and Gas Association of West Virginia, acknowledged that market conditions vary, but said companies are generally able to adjust. He also does not believe a decline in the price of ethane will discourage the development of an ethane cracker in the Marcellus Shale region.
Royal Dutch Shell is still planning to build a multibillion-dollar cracker in the Monaca, Pa. area, a project that officials from both Ohio and West Virginia worked to attract.
Aither Chemicals is looking to build a smaller scale cracker in the Charleston area.
"I am sure the business plans of those looking at a cracker account for fluctuations in price," Burd said.
"If you are going to build a cracker, you are looking at the long-term price of ethane. If anything, a developer may be able to lock up a supply contract for a lower price now," DeMarco added.