The November issue of JPT quotes the views of Mary Van Domelen, senior engineering advisor at Performance Technologies, given in her presentation “The Pros and Cons of Vertical Integration” in shale gas-related operations. All her examples of current activity are in the realm of the vertical with the operator and a service company offering fracturing and other drilling or completion services. Her presentation was part of the SPE Liquids-Rich Basins Conference, held in September 2013 in Midland, Texas. Interestingly, both dry and wet gas can benefit immensely from a different form of vertical integration provided certain new technologies take hold. This is a vertical involving the producer and a service that monetizes low-value portions of fluids in unique ways.
Today, almost all the profit is in the wet gas component. But a subplot is that ethane usually makes up nearly half the volume of natural gas liquids (NGLs). Unlike the bigger molecules, such as propane and butane, ethane has no direct use until cracked to make ethylene. Thirty-three of the 36 crackers in the United States are located on the Gulf Coast, about 1,200 miles from the Marcellus shale in Pennsylvania. Consequently, there is an ethane glut, resulting in low prices. Dow Chemical’s David Bem reported in December that ethane dropped to natural gas price levels in 2013 and had begun to track with it (Fig. 1). This would be a windfall for ethylene producers except that the crackers are located at a distance.
Local cracking seemed to be where matters were headed. However, early in November 2013, Shell announced that it had shelved plans to build a cracker in Pennsylvania. This leaves the ethane stranded absent a pipeline to transport it down to the Gulf of Mexico. A better solution would be small crackers, 50 to 100 times smaller than conventional plants, distributed close to the production. Development is in progress to realize this “GTL Lite” concept. The definition of liquid in this context is broad: It could be any high-value liquid, not just diesel that traditionally comes from larger GTL plants.
Security of supply is much simpler with small units, particularly because a lot of the producers themselves are small. And it is immensely simpler if the producer and cracking process owner are vertically integrated. Even long-term pricing would not be a contractual hurdle. But true vertical integration is hampered by the fact that the producer has no domain understanding of the other area, which is essentially downstream in character.
For unconventional hydrocarbons, including heavy oil, a blurring of the upstream, midstream, and downstream sectors is occurring. Small footprint processing, when commonly available, will only serve to hasten this blurring.