BEAUMONT, Texas -- From some angles, it looks as if all pipelines lead to Beaumont. The Texas town seems to build in bulk when it comes to prisons, Baptist churches and taquerias -- and pipelines are no different, with dozens of them underlying cow pastures or poking out of the ground when they cross a shallow bayou.
Soon, new pipelines originating in Pennsylvania will join the crowded Texas fields after a trip of nearly 1,500 miles. Their cargo: natural gas liquids extracted from parts of the Marcellus Shale that lies under Appalachia.
Traveling from Pennsylvania to Texas via pipeline has become the hottest ticket in the energy industry.
Over the past year, several energy infrastructure firms have announced plans to transport Pennsylvania liquids to the petrochemical facilities and export markets available in towns near the Gulf Coast like Beaumont. Oftentimes, the deals are financed with help from joint venture partners, all trying to solve (and cash in on) Pennsylvania's energy problem.
What's the problem? We have the goods but nowhere to take them.
Enterprise Products Partners LP will start building a pipeline next month that will lead from Houston, Pa., to outside Houston, Texas, and should be in service by early 2014. This month, the Williams company announced plans for a joint venture with Boardwalk Pipeline Partners to transport Marcellus liquids from their "infrastructure-constrained" region in Appalachia to a site in Louisiana. Several other firms, including El Paso and Sunoco Logistics, have similar plans.
The deals have been driven by high prices for natural gas liquids like ethane and butane, products found in parts of the Marcellus Shale that have boosted drillers' bottom lines even as regular natural gas prices have plummeted.
Ethane in particular has become a hot commodity. It can be processed into ethylene, which is used to make plastics that become everyday objects such as computer chips or car bumpers.
But you need a plant that can convert ethane into ethylene for it to be worth much at all.
Pennsylvania expects to get a "cracker" petrochemical plant that will do just that, but it will take several years of construction. In the meantime, producers and other energy stakeholders have to find ways to get the Keystone state's ethane to the Gulf Coast, where such facilities seem almost as common as houses.
"Unless there is a cracker built somewhere up in that region, right now the demand is in the Gulf Coast where all of the petrochemical facilities are," said Rick Rainey, vice president of public relations at Houston, Texas-based Enterprise.
This cross-country movement can seem like a model with prohibitive overhead costs, especially because some of the ethane shipped down South will eventually make its way back to Pennsylvania as plastic.
Redirecting the flow
But the increased production in Pennsylvania has helped offset the need for pipelines that traditionally moved gas from the South to the North, allowing companies to cut costs by redirecting existing pipelines rather than building whole new ones.
That's the case with Enterprise's ethane pipeline, which will originate at a MarkWest processing facility in Houston, Pa., picking up the product after Marcellus gas is processed and various liquids are stripped out. Construction will begin next month on the first leg of the Enterprise project, connecting the facility in Houston, Pa., to a route in Seymour, Ind.
The line will have an initial capacity of 190,000 barrels per day, and is expected to generate about 4,000 temporary and permanent jobs, the company said.
Two pipelines in Seymour currently ship gas for home heating and other utilities from the South to markets in the North, but production in Pennsylvania has offset the need for two lines. After the Enterprise ethane line is up, only one pipeline will continue to move gas from the South to the North, while the other will be converted to ship the ethane from the North to the South.
About 70 percent of the Enterprise route will use pipelines already in place.
Pipeline redundancies created by the Marcellus production will also help the Williams and Boardwalk companies in cutting costs for their proposed venture. The companies plan to convert Boardwalk pipelines to run liquids, which are typically cheaper to run because they require lower pressures, said Kelly Knopp, vice president of natural gas liquids and olefins marketing at Williams.
The converted pipelines wind through the plains to towns like Beaumont, where Enterprise has a massive terminal full of storage tanks that look like squat grain silos in a field with roaming cattle. It's not the last stop.
An additional 55-mile pipeline will connect the Beaumont terminal to facilities in Mont Belvieu. The Texas town seems to have followed the advice from "The Graduate" and built itself on plastics. Petrochemical plants fill every vantage point, and the 5 p.m. shift change creates a stream of pickup trucks that requires a daily traffic cop.
This is the kind of scene that danced in the heads of lawmakers from several states who lobbied Royal Dutch Shell for its Marcellus plant. Pennsylvania legislators ended up approving some $1 billion in tax breaks and exemptions for the company as part of the deal to locate in Beaver County. Shell has until June to decide whether it definitely will build its cracker plant in Monaca.
Not easy sledding
Despite that agreement, Pennsylvania faces an uphill battle in getting its first petrochemical facility, said Mr. Knopp, since they tend to self-populate in places where infrastructure and a workforce are already in place. Six additional plants are already on the docket for Texas and Louisiana, and numerous existing sites are undergoing billion-dollar expansions to meet the new demand for ethane.
Deals like the Enterprise and Williams pipeline ventures might not be necessary when Pennsylvania's projected petrochemical plants are in place. Such ventures are a short-term solution for an industry that defines "short-term" as over the next decade, said Mr. Knopp.
"Once you've built [the cracker], you're going to see continued downstream development" in the local energy economy and a potential increase in domestic manufacturing, said Mr. Knopp.
Most of the pipelines headed from Pennsylvania toward the Gulf start in the southwestern pocket of the state, where the lines also have access to liquids extracted from Ohio's Utica Shale.
Despite the recent flurry of activity around the north-to-south ventures, there's a natural limit to the number of pipelines necessary to ship Marcellus product to the Gulf, said Robert Ineson, managing director of North American Natural Gas at the Houston, Texas, office of IHS Global Insight.
"If you miss the window of initial development, your company gets shut out," he said.
In the meantime, the plants in Texas will convert Marcellus Shale ethane into ethylene and then into plastic pellets that can become medical equipment or car dashboards. Those goods will travel by rail or ship to various markets -- perhaps even to some places that take the process full-circle.
"A tremendous amount of plastics is consumed in the northeast," said Mr. Knopp.
Erich Schwartzel: firstname.lastname@example.org or 412-263-1455. First Published March 24, 2013 4:00 AM