Plan to ship ethane through Phila. may not sail smoothly

Posted: November 10, 2011

Despite having the apparent support of Congress, Sunoco's plan to transport ethane from the Marcellus Shale through the Philadelphia area is far from a sure bet.

Energy analysts say that the Mariner project, which would pipe ethane derived from shale gas to a Sunoco dock on the Delaware River and then by sea to the Gulf Coast, is an unlikely path for the commodity to find its way to market. Ethane is a valuable raw material for manufacturing plastics.

"There are other ethane projects that don't have as many hurdles, that don't require an act of Congress to get going," said Kristen Holmquist, an analyst with Bentek Energy L.L.C. in Colorado.

The land-sea route through Marcus Hook, which Sunoco Logistics Partners L.P. plans in partnership with MarkWest Energy Partners L.P., received a boost last week when Congress signaled it would allow three ethane tankers to sail under the U.S. flag. Only U.S.-flagged vessels can carry cargo between American ports.

Sen. Pat Toomey (R., Pa.) told a Senate panel that the only obstacle holding up the Sunoco project was legislative approval, which would allow the foreign-flagged tankers to be reflagged as U.S. vessels.

"We have a $300 to $400 million liquid natural gas facility that is awaiting one activity, one action, to begin construction to create hundreds of jobs in Southeastern Pennsylvania," Toomey told the Senate Commerce Committee. He said the project would begin "virtually immediately when Congress acts."

But the congressional action, though critical, is only one step among several that need to be completed before the Mariner project proceeds, said Thomas P. Golembeski, Sunoco's spokesman.

Analysts say the biggest obstacle facing the Mariner plan is the lack of product. Two other pipeline projects moving forward appear to have captured much of the expected Marcellus ethane production through 2017.

"There's not enough ethane produced to fill all these projects," Holmquist said.

The biggest project is a 1,230-mile pipeline to the Gulf Coast, announced Nov. 2 between Enterprise Products Partners L.P. and Chesapeake Energy Corp.

The second green-lighted project is also a partnership between Sunoco Logistics and MarkWest that would pipe Marcellus ethane to customers in Ontario. It is expected to go online in 2013.

John Stekla Jr., an analyst with IHS CMAI in Houston, said that moving ethane by pipeline is less costly than shipping it in 900-foot-long tankers that were designed to transport supercooled liquefied natural gas (LNG).

But Golembeski said Sunoco believes that the Mariner project through Philadelphia is viable. "We think there's enough ethane to go around," he said.

Marcellus producers have been hard-pressed to find ways to transport the ethane produced in some parts of the shale formation.

Though natural gas contains mostly methane, the "wet" gas produced in Western Pennsylvania, Ohio, and West Virginia contains large amounts of high-value components - propane, butane, and ethane.

Processors need to remove ethane from natural gas because its high energy content causes gas to burn too hot.

Ethane is also more valuable if sold separately. It is a major raw material for petrochemicals - it is converted or "cracked" into ethylene, which is a building block for ubiquitous plastics like polyethylene and styrene.

Several chemical manufacturers have expressed interest in building an ethylene cracker in the region, but the multibillion-dollar plants take years to build. Marcellus producers need a quicker outlet for their ethane.

Sunoco Logistics and MarkWest last year unveiled the Mariner project to deliver the ethane by sea to the gulf.

But the LNG vessels that hold the supercooled liquid fuel in large spherical tanks now sail under foreign flags. A law known as the Jones Act requires that all ships carrying cargo between U.S. ports must be built, owned, crewed, and maintained by Americans.

The ships Sunoco would charter are American owned and were built in the late 1970s in Massachusetts. But they were reflagged in the Marshall Islands in the 1990s. It requires an act of Congress to reflag the vessels as American, which would require them to use U.S. crews.

Toomey and Rep. Pat Meehan (R., Pa.) devised a novel way to reflag the tankers by including them in the America's Cup Act of 2011, special legislation that would permit 60 foreign vessels to participate in the America's Cup yacht race.

The law is expected to receive final Senate approval and the president's signature this week, before the America's Cup race is scheduled to start Saturday in San Diego.


Contact staff writer Andrew Maykuth at 215-854-2947, @Maykuth on Twitter, or amaykuth@phillynews.com.

 

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