Fitch: Marcellus shale giving boost to US midstream firms

Anticipated growth in Marcellus shale natural gas production likely will mean more long-term business for US midstream companies, Fitch Ratings said in a recent report in which analysts forecast Marcellus production during the next 5 years will grow to more than 10 bcfd from the current 4 bcfd.

Expanding Marcellus production will require midstream companies to expand gathering and processing services and provide pipelines to transport gas and associated natural gas liquids.

Ralph Pellecchia, Fitch senior director, sees robust economics in the Marcellus and increasing regional gas demand despite low gas prices and public concerns about hydraulic fracturing, which might slow the pace of development. He foresees possible producer consolidation.

“Marcellus is a core area for many producers and a high priority for committed capital,” Pellecchia said. “What consolidation in the Marcellus may lead to is improved credit quality for midstream companies. Many smaller entities could be candidates for acquisition by larger, more highly rated and better capitalized companies.”

Marcellus production has begun displacing supplies that traditionally served eastern US markets, and more gas is expected to be produced than the region can consume.

As Marcellus production ramps up, pipeline expansions and flow reversals will enable that gas to reach Canada, New England, the Atlantic states, the Gulf of Mexico region, the Midcontinent, and the Midwest.

Overseas shipments are likely as LNG export capability is developed, Fitch said.

Production in the liquids–rich parts of the Marcellus is resulting in bottlenecked NGL supplies, creating the need for more processing plants and NGL pipelines.

Liquids currently move primarily by high-cost train and truck, and significant blending of dry with wet gas to meet pipeline quality standards.

Plans are under way to move the processed ethane and other NGLs to petrochemical markets in Canada and the Gulf Coast. This will involve both conversions of products pipelines for NGL use and newbuilds.

Development of regional ethane cracking capacity is an alternative option that some companies are considering, Fitch said.

For instance, Shell Chemical LP is studying land near Monaca, Pa., for the petrochemical complex it is considering to use ethane from Marcellus gas (OGJ Online, Mar. 15, 2012).

Contact Paula Dittrick at paulad@ogjonline.com.

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