Marcellus Shale pipeline coming to Philadelphia area

A piece of the Marcellus Shale natural gas business will start to flow through the Philadelphia area in the next few years.

Sunoco Inc.'s pipeline subsidiary announced Wednesday that it had struck a deal to transport ethane produced in the Marcellus Shale to a Delaware River facility for shipment by sea to the Gulf Coast.

The Mariner Project, as Sunoco Logistics Partners L.P. has dubbed it, calls for construction of a refrigerated terminal to store supercooled ethane at one of Sunoco's existing facilities.

Philadelphia, Marcus Hook, and Westville, Gloucester County, are possibilities.

"We're looking at a variety of options," said Thomas P. Golembeski, Sunoco's spokesman. "We'll pick the one that makes the most sense."

The deal between Sunoco Logistics and MarkWest Energy Partners L.P. addresses one of the issues nagging gas operators as production in the Marcellus Shale rapidly escalates: how to transport the growing volume of natural gas and its byproducts to market.

Marcellus wells in northern Pennsylvania produce "dry gas," mostly methane, that can be sold by pipeline directly to electrical generators or homeowners, without additional processing.

But Marcellus wells in southwestern Pennsylvania produce a sidestream of high-value hydrocarbons such as ethane, butane, and propane that must be separated at plants operated by companies like MarkWest, a Colorado firm.

Ethane is a major ingredient in ethylene, which is used to produce plastics. The biggest markets for ethane are petrochemical plants in Texas and Louisiana.

Golembeski said ethane also might be exported overseas from Philadelphia.

"There's no reason why the ethane couldn't be transported to international markets down the road," he said.

Neither company provided estimates on how much the project would cost, or earnings projections. Pipeline companies like Sunoco Logistics typically charge fees based on the volume of material they transport, providing a predictable earnings flow that is protected from the price fluctuations that affect commodities such as fuel.

MarkWest said it would upgrade its processing facilities in southwestern Pennsylvania, where it separates constituents in natural gas and converts them into liquids.

The company processes gas produced by operators such as Range Resources Corp. and Chesapeake Energy Corp.

MarkWest will construct a 45-mile pipeline from its complex in Houston, Pa., to connect to Sunoco's existing eight-inch-diameter pipeline in Delmont, Pa. That liquid-fuels pipeline crosses Pennsylvania to connect to Sunoco production facilities in the Philadelphia area.

Deborah M. Fretz, chief executive officer of Sunoco Logistics, said the company's underused pipeline "is well-positioned to provide an efficient solution for producers to move ethane across Pennsylvania to a Delaware River marine port to access multiple markets."

The project will have the capacity to transport up to 50,000 barrels per day of ethane - 2.1 million gallons - when it starts up in 2012.

Besides construction jobs, Golembeski said, the project will generate some long-term employment in the maritime industry, as well as at the terminal site where the ethane is loaded onto tankers.

The cross-state pipeline and marine terminal would provide a much-needed outlet for MarkWest, which operates its Marcellus project - MarkWest Liberty Midstream & Resources L.L.C. - in partnership with the Energy & Minerals Group, a Texas private-equity fund.

MarkWest is now producing 155 million cubic feet of gas a day in southwest Pennsylvania. Chief executive Frank M. Semple told analysts last month that that amount was projected to quadruple by the end of 2011.

As production expands, the company needs to find outlets for the liquids - especially ethane, for which there is little local market.

"Long term, we need an ethane solution," Semple told the analysts.