Utica condensate routes to Canada

Sandy Fielden, RBN Energy

Output of naphtha range material such as plant condensates and natural gasoline in the Ohio section of the Utica shale is increasing rapidly as new processing and fractionation capacity in the region comes online. Output of field condensate from the wellhead is also expected to take off in 2014. These light hydrocarbons will be delivered to market by a combination of pipeline, rail and barge infrastructure. Today we look at pipeline infrastructure plans to deliver condensates and natural gasoline to Canada as diluent.

This is Part 3 of a blog series covering midstream plans to capture and deliver condensate range materials to market from Utica shale production. In Part 1 we covered the expected surge in condensate, natural gas liquids (NGLs) and to a lesser extent crude oil production from the Utica shale in the next year (2014) as a result of new infrastructure coming online. Then we described condensate and crude supply infrastructure plans recently outlined by MPC/MPLX at the Hart Energy DUG East Conference (November 15, 2013). In Part 2 we looked at MPLX’s longer term Utica transportation strategy to provide third party shippers with options to move liquids outside the region. This time we take a look at infrastructure proposals from Unity Pipeline Company and Kinder Morgan to move condensate production out of the Utica to Canada.

As we have detailed in a number of blogs, the largest potential market for light hydrocarbons such as condensate and natural gasoline is Western Canadian producers looking for diluent to help their bitumen crude flow in pipelines (see It’s A Bitumen Oil, Does it Go Too Far? and It’s a Kinder Magic the Eagle Ford Diluent Trail). The Canadian market is expected to require growing volumes of diluent imports to supplement local production. In 2013 the Canadian diluent shortfall will be about 200 Mb/d growing to 370 Mb/d by 2018. The main diluent route into Canada is the 1600 mile, 180 Mb/d capacity Enbridge Southern Lights pipeline that runs from Chicago to Edmonton (see Fifty Shades of Eh). Enbridge hopes to expand Southern Lights to carry 275 Mb/d as shipper demand increases. In July 2014 the Kinder Morgan Cochin reversal that will ship 95Mb/d of diluent from Kankakee, IL to Edmonton, will come into service in competition with Southern Lights. 

Canadian diluent buyers generally prefer natural gasoline to lease condensate because the former is produced to a more consistent plant specification. However, Southern Lights today and Cochin next year require condensate to meet a standard pipeline specification set by Canadian producers known as the Edmonton CRW. The pipelines use the Canadian version of a crude quality bank, known as “Equalization” to regulate the specification (for more on quality banks see Crude Oil Quality Banks). Lease condensate producers in the Utica therefore need to treat their product by stabilization to meet the pipeline specification for Canadian diluent.  

In Part 2 of this series we described how Marathon Petroleum Company (MPC) pipeline plans could potentially allow Utica shippers to route diluent to Canada via third party links in Chicago. Competitor midstream companies are proposing more direct pipeline infrastructure to ship Utica condensate and natural gasoline to the Southern Lights and/or Cochin pipelines to Canada.

One of the first of these projects is the Unity Pipeline, a joint venture of Harvest Pipeline Company (part of Hilcorp); Somerset Gas Transmission Company, and Crossroads Pipeline Company (part of NiSource’s Columbia Pipeline Group) announced November 5, 2013. The project consists of a 380-mile mixture of new and existing pipelines (see red line on the map below). The first section will be a new 12-inch pipeline built by Harvest, from Kensington, OH, to Somerset’s existing North Coast natural gas pipeline at Mantua, OH (green parenthesis on the map). The North Coast pipeline connects to the Crossroads Pipeline at Cygnet, OH, that runs across Ohio and Indiana to Griffith, IN (purple parenthesis). At Griffith the Unity pipeline will connect to the Explorer Pipeline (yellow line). Explorer is a 1400 mile 700 Mb/d refined products pipeline system from Lake Charles, LA to Hammond, IN. Unity shippers will make use of a small section of the Explorer pipeline to connect to the origin of the Enbridge Southern Lights diluent pipeline at Manhattan, IL (green line). Southern Lights connects to Edmonton, Alberta. The North Coast and Crossroads pipeline systems, which currently transport natural gas flowing west to east, will be reversed and converted from natural gas to diluent transport as a part of this project.

 

Source : Unity Pipeline Open Season and RBN Energy

Assuming that the Open Season is successful and the new pipeline sections and reversals receive approvals and permits, the Unity pipeline will be in service by mid-2015, operated by Harvest Pipeline Co. The initial capacity of the pipeline will be 60 Mb/d, expandable to 100 Mb/d. The Open Season has two phases – the first being a non-binding solicitation of interest that ends on December 20, 2013.  Phase 2 (to be held in 2014) will require prospective shippers to submit binding offers for firm long-term transportation (10 years).  The Unity pipeline open season documents indicate a $5/Bbl take or pay committed shipper rate to the Explorer pipeline and $0.75/Bbl for shipping on Explorer to the Manhattan Southern Lights Origin. If there is sufficient interest, Unity will also construct a gathering system and a truck unload facility at Kensington to deliver diluent products from the Marcellus and Utica regions to an interconnection with the new pipeline.

 

Source: Kinder Morgan Natural Gas Pipelines Presentation January 2013

Aside from the Unity pipeline and the opportunity that MCP may provide shippers to link to the diluent pipelines through third party pipelines in Chicago, Kinder Morgan has broached the possibility of a direct link from the Utica in Ohio to their Cochin Canadian diluent pipeline. The status of this eastern leg to Cochin is unclear at present as we shall see in a moment, but the map above shows the proposed route (dotted purple line). The plans shown in the map were presented at the end of January this year (2013). At the time Kinder Morgan was planning to convert part of the Tennessee Gas Pipeline (TGP) to bring wet gas from the Utica and Marcellus to a planned processing and fractionation plant in Tuscarawas county Ohio (red lines on the map).   

Subsequent to those plans, in August 2013, Kinder Morgan, Mark West and The Energy and Minerals Group (EMG) announced a letter of intent to form a midstream joint venture company. The new company is proposing to develop a 400 MMcf/d cryogenic processing plant at the site in Tuscarawas where Kinder Morgan had earlier planned to build their plant. But now instead of building a fractionator alongside the cryogenic processor as Kinder Morgan originally intended, the joint venture will instead develop a 150 Mb/d pipeline to transport raw mix NGLs to Gulf Coast fractionation facilities that will also be developed by the partners. The proposed pipeline would repurpose part of the capacity of the Kinder Morgan TGP pipeline and if built, come online in mid-2016. Given that the new joint venture does not include fractionation, the volume of natural gasoline and plant condensate produced at Tuscarawas may not justify Kinder Morgan developing the earlier proposed link to Cochin. However, developing a direct link from Utica production to the Cochin pipeline remains an obvious future opportunity for Kinder Morgan.

As the NGL processing and fractionation facility build out continues in the Utica, natural gasoline and plant condensate output needs to find a home. Takeaway capacity to Canada via links to the Southern Lights and Cochin diluent pipelines are an important route for these plant outputs as well as for stabilized field condensate produced at the wellhead. Other NGL fractionation and processing facilities in the region are planning alternative takeaway capacity by rail or barge. We will cover those facilities in the next episode in this series.

About the author
Sandy Fielden serves as Director Energy Analytics for RBN Energy LLC and is an internationally accomplished professional with 25 years of management and communication experience in the European and North American energy industry, including ten years as a vice president at industry leading firms. He is a widely recognized expert at analyzing, processing, and communicating the value of a wide range of information in the energy industry.

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