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Pipeline expansion to aid W.Va. gas industry

Oct. 03, 2010 @ 08:30 AM

CHARLESTON (AP) — Which comes first: the gas well or the gas pipeline?

That's a question posed at the Sept. 17 groundbreaking for Eureka Hunter Pipeline LLC's new gathering line in Tyler County.

"It's kind of the chicken and the egg: Do you drill the well first or put the pipeline in?" asked Gary Evans, CEO of parent company Magnum Hunter Resources Corp. "We have enough confidence with the reserves in this area to go ahead and commit the money to build the pipeline."

Because the Marcellus Shale region where gas companies are racing to drill coincides with past natural gas fields, much of it already is served by existing pipeline.

But some parts of the region never had pipeline.

Other parts have pipeline so old or so small that it needs to be upgraded -- like the low-pressure, 6-inch line Eureka Hunter is replacing with high-pressure, 20-inch line.

And throughout the region, facilities that support gas transportation need to be updated and expanded.

"It's a complete resurrection of all facets of the gas industry from central West Virginia up to central New York," according to James Crews, managing director for Appalachian supply for major West Virginia gas mover Columbia Gas Transmission and president of the West Virginia Oil and Natural Gas Association.

The resurrection is driven not so much by the Marcellus Shale we hear about every day, Crews said, as by the new technologies that made the Marcellus gas accessible: the hydraulic fracturing that breaks up hard rock to release gas and the horizontal drilling that extracts gas from larger areas with a smaller footprint and lower expense.

With those advanced technologies, he said, the Marcellus is only the first of a number of Appalachian formations to be exploited, naming as yet to come the Rhinestreet, Lower Huron and Utica shales as well as sandstone formations.

"The (pipeline) infrastructure has to be expanded above and beyond its current footprint because it doesn't extend throughout the breadth of the Marcellus formation," he said, "and the other shales, for that matter."

Another major mover of gas in West Virginia, Dominion Transmission Inc., sees in shale gas production a chance to increase its services.

"If you take the footprint of the Marcellus Shale and then you take a map of where Dominion's pipelines are, it's the same place," said spokesman Dan Donovan. "It's basically in our back yard. What we plan to do is grow with the Marcellus Shale."

Growth in pipeline and associated services promises hundreds of millions of dollars of investment -- starting around now.

Developed over more than a century, West Virginia's gas pipeline infrastructure is extensive, though largely invisible.

"The state has more pipeline than it does highways," Crews said.

Donovan enumerated four types.

"There are the gathering lines that take gas from the wellheads, storage lines that take gas to or from storage and large transmission lines that take it from state to state," he said. "And there's distribution to customers."

The gas transportation system also requires compressor stations that pull and push the gas along the pipelines.

And, especially in the northwestern part of the state where the gas is rich in heavier hydrocarbons, processing stations are needed to take the gas from gathering lines and remove water vapor and natural gas liquids -- ethane, propane, butane and pentanes -- before putting the methane into the transmission system.

Taken together, the pipeline and associated facilities are known in the industry as "midstream" services because they link production with delivery.

Dominion, Columbia and Equitrans are West Virginia's biggest midstream operators, according to U.S. Energy Information Administration data.

Each midstream company offers its own mix of gathering, processing, storage and transmission.

Some of the new wave of midstream projects already is online.

Columbia's Appalachian Expansion Project, for example, responded in 2009 to new horizontal drilling activity with two new compressor stations and a stretch of replacement pipeline in Lincoln County.

But 2010 has been especially busy.

Columbia and frequent collaborators MarkWest Energy Partners have completed or are completing processing projects this year in Kanawha, Marshall and Wetzel counties and increasing associated gathering capacity in the surrounding areas.

The Marshall County project, for example, went online last month.

"We flipped the switch last Tuesday (Sept. 7)," Crews said. "We're doing 135 million cubic feet a day (MMcf/d)."

The project converted about 40 miles of transmission pipe to gathering pipe for wet gas service, a total capacity of about 400 MMcf/d, he explained. It also reactivated an inactive compressor station and installed two new cryogenic processing units.

The Eureka Hunter gathering line that was celebrated earlier this month will be able to run 200 MMcf/d from Tyler County into Wetzel County starting in November.

And Caiman Energy LLC is adding gathering in northwest West Virginia along with additional processing capacity at its Fort Beeler site in Marshall County, to go online in November.

These 2010 pipeline projects alone add capacity of perhaps 1,000 MMcf/d.

What's the scale? While it's not easy to get an estimate of existing gathering capacity across the state, the numbers look significant compared with EIA data showing total transmission capacity into and out of the state of about 7,000 MMcf/d each.

And 2011 promises to bring continuing midstream growth.

While each of these projects represents tens of millions of dollars, several larger midstream investments will begin coming online in 2012.

With its Sunrise Pipeline Project, Equitrans will build 110 miles of pipeline in two legs, one from Doddridge County and one from Taylor County, up into southwestern Pennsylvania -- a large project with a 2012 in-service date and an investment level that has not yet been named.

Dominion's Gathering Enhancement Project is a $253 million investment in West Virginia: 25 miles of new and replacement gathering line, nine new compressor stations, new processing plants in Lewis and Pleasants counties and an expansion of the Hastings Extraction Plant that separates the various natural gas liquids.

And Dominion's Appalachian Gateway Project addresses what Donovan called a "bottleneck of gas in West Virginia that can't get to market."

The $600 million project includes four new compressor stations in West Virginia and some tens of miles of pipeline in Marshall County as part of a 110-mile pipeline addition that lies mostly in Pennsylvania.

Both Crews at Columbia and Donovan at Dominion said pipeline jobs are bid to local contractors.

Columbia has committed about $200 million a year toward midstream projects in Appalachia "for the foreseeable future," about a third of which Crews estimated will be in West Virginia.

The gas boom in general will produce many jobs, Crews said, while making reference to conditions that inhibit investment.

"I would hope that West Virginia gets white-collar jobs from it, but the tax situation is a challenge," he said. Still, "I expect blue-collar employment to be nothing but up."