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Unconventional Yearbook 2018

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94 | January 2018 | 2018 UNCONVENTIONAL YEARBOOK | MIDSTREAM stand there are two problems in Appalachia. One is how to get Marcellus and Utica gas out of the basin and to market. The other is the largest and closest metropolitan markets, the ones currently paying the greatest differential, are the most diffi cult to reach with meaningful new volumes. While the answer to the second is also a partial answer to the fi rst, there are answers to the fi rst that head in another direction and do not solve the second. Notably that is moving Appalachian gas south, either to new power generation in the formerly coal-dependent Southeast, or all the way to the Gulf Coast. "One piece of good news for Appalachian pro- ducers," Haas said, "is that Kinder Morgan has opened a season on the Utica Marcellus to Texas proposal that seeks to serve NGL producers and processors. This is something of a zombie plan that was fi rst proposed in 2012 and is now being brought back to life." More help for Appalachian producers is home grown. Shell Chemical has broken ground on its long-contemplated olefi ns and polymers complex. The idea of a "Marcellus cracker" has been around ever since the liquids-rich window of the play over- whelmed fi rst local then regional markets for NGLs (see sidebar). "There have also been at least two different pos- sible collaborations on a second such olefi ns plant in the region," added Haas. It is too soon to tell if any of that will come to fruition. The set of possible partner companies seems to be in fl ux and may be for some time. The memorandum of understanding signed by China Energy Investment Corp. and the State of West Vir- ginia offers an amazing possibility of $84 billion in shale and petrochemical manufacturing invest- ment in the state over the next two decades. But Haas anticipates that only a few fi rm decisions may be made by the end of 2018 to positively affect the Appalachian region in the short term. Eagle Ford in 'later innings' Erik Holt, vice president of business development and land with Teal Natural Resources, noted how different conditions are in the Eagle Ford in con- trast to those in the Permian for both producers upstream as well as for operators in the midstream. "I was with an operator in the Delaware Basin rel- atively early in that development," he recalled. "There was such intense competition for undevel- oped assets at the time. We don't have nearly the same velocity in the Eagle Ford these days." By Holt's account the South Texas play is "in the later innings. We saw billions of capital invested upstream and midstream before the recent com- modity downturn. After 2014 there has been so much production come down from a crude take- away perspective that it is not economical to build new pipe, or even for us as a shipper in some cases to ship by pipe," he said. On the gas side, "Whoever has a set footprint and assets in operation is who is going to be com- peting," in Holt's assessment. "I have not heard anything about anyone hurting. The economics are not bad; they are different than they were just a few years ago." That situation has led to consolidation, as high- lighted by the $815 million deal by American Mid- stream to acquire South Cross announced this past Nov. 13. Prior to the acquisition American Midstream had about 4,000 miles of interstate and intrastate pipelines in the Gulf of Mexico, Permian Basin, East Texas and elsewhere. When the Southcross assets are fully integrated the combined operation will include 10 processing plants and more than 8,000 miles of crude, natural gas and NGL pipelines. Holt also noted that "some of our gas is high in hydrogen sulfi de, so if a producer does not treat gas on the lease then there are more limited midstream take-and-treat options than there are for sweet gas." It also bears mentioning that the midstream took the brunt of the hit that Hurricane Har- vey delivered to South Texas. "Upstream we and most other producers were able to shut wells in advance of the storm, and then bring them back with minimal effects. There was more disruption downstream. It is not that operators were not able to turn wells back on but that the bottleneck was midstream operations being out of service. I don't think many of them suffered serious damage, it was more a matter that they took longer to bring back into service." ■

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