Gas Processors Reshape Washington County, Pa.
Monday, April 02, 2012
By Dan O’Brien
WASHINGTON, Pa. — Four years ago, the hillside along state Route 519 in Chartiers Township, Pa. was packed with dense forest, Terry Frieseo recalls. Within several months, that forest was gone and the hillside cleared and landscaped. Truck traffic along the route increased dramatically, and work started in earnest on a massive, $200 million processing plant for the natural gas industry.
“I’ve seen this grow from nothing over the last four years,” says Frieseo, a retired firefighter who helps maintain a safety-training site across from the plant — a sprawling, 50-acre complex operated by MarkWest Energy Partners LP. The plant is capable of gathering hundreds of millions of cubic feet of natural gas per day and processing that gas for the energy market. “A lot of jobs have come this way. There’ll be a lot more, too, when it’s all over.”
The MarkWest plant is the single largest investment in Washington County since the gas rush began nearly five years ago in this section of southwestern Pennsylvania. While drilling rigs have come and gone, and construction activity ebbs and flows related to these operations, plants such as MarkWest’s demonstrate the industry’s long-term commitment to the region, officials say.
MarkWest’s specialty is providing “midstream” services for the industry, that is, the collection, compression, fractionation, processing, and transportation of dry natural gas, natural gas liquids and oil. Midstream operations pick up once wells are drilled and production begins, and encompass pipelines, compressor stations, fractionation plants, processing stations, and more pipelines.
In 2008, Denver-based MarkWest announced it would partner with Range Resources of Fort Worth to build the largest natural gas processor in the northeast to deliver natural gas tapped from the Marcellus shale, a giant reservoir of dry and wet gas embedded in rock buried deep beneath Pennsylvania, Ohio and West Virginia. The Houston, Pa., plant was the first step in the company’s Liberty division – a $200 million cryogenic processor and fractionation complex that is able to separate dry gas from wet gas, and then fraction that wet gas into specific liquid products such as ethane, butane and propane.
The company also has constructed another processor in Majorsville, Pa., on the West Virginia border, and two other cryogenic processing plants in Mobley and Sherwood, West Va.
Drilling activity in the liquids-rich Utica shale, a rock formation buried below the Marcellus, has prompted MarkWest to move into the Ohio Valley. The company plans to construct two large processing centers – one in Harrison County and the other in Monroe County – smaller, but similar, to the Houston plant. These projects are expected to add hundreds of construction jobs to payrolls and hundreds of permanent positions.
A larger fractionation plant is planned for somewhere in southwest Ohio, reports Frank Semple, MarkWest president and CEO. “It’s important to locate these facilities where the producers have determined where the gas is going to be most economic,” he says. “In other words, the combination of reserves in the ground and the volume of natural-gas liquids. It’s best to put it right in the middle of the most productive part of the play.”
Semple was on hand March 13 in Cadiz, Ohio, where MarkWest recently opened a regional office. “We will see ultimately, companies like MarkWest, locating in this Utica shale play,” he says.
He envisions development in the Utica shale moving in the same direction as the Marcellus did four years earlier. “We’ve invested almost $2 billion over the last four years in the Marcellus,” Semple says.
Semple, during a conference call with analysts in early March, reported that the company’s Marcellus Liberty segment in Pennsylvania and West Virginia has processing capacity in excess of one billion cubic feet per day, and fractionation capacity of 85,000 barrels per day.
MarkWest also is moving forward with six new processing plants in West Virginia in order to process more gas from the Marcellus shale, Semple reports. “These processing plants are supported by long-term contracts with producer customers,” such as Consol Energy and Range Resources, he says.
The Majorsville and Houston plants are also in the process of adding equipment that will allow the sites to process 115,000 barrels a day of ethane, a sought-after liquid gas that is used in a variety of plastics, Semple says. Another 400 miles of gas gathering infrastructure is also under construction, as is a 200-car rail yard at the Houston complex.
“When these projects are all completed in 2012 and 2013, our processing capacity in the Marcellus will increase to 1.7 billion cubic feet per day, and our total fractionation capacity will increase to 175,000 barrels a day,” Semple says.
The economic impact of midstream operations is having a ripple effect across southwestern Pennsylvania. While the processing plants directly employ no more than 100 people full-time, the jobs created as a result of these processing plants could be significant. Some studies have calculated that for every job created by the oil and gas industry, four spinoff positions are created in other sectors of the local economy.
“We were geared to supplying manufacturing facilities like the steel industry,” says Paul Battista, owner of Sunnyside Supply Inc. in Slovan, Pa. “Business was pretty good. Then, the shale play hit and it’s been overwhelming.”
Battista says that as the region became inundated about four years ago with energy exploration companies scouring for natural gas in this wet window of the Marcellus, he opted to shift his business model and stock the type of inventory that would suit the industry’s needs.
“The learning curve was intense,” he says. “I was up late doing a lot of research on the Marcellus and trying to find out where we fit in.”
His answer was to reconstitute the Sunnyside’s business to accommodate midstream companies such as MarkWest that are operating in the Marcellus shale, Battista relates. Soon, the supply company’s shelves were stocked with products such as fire-resistant work gear, hardhats, reflective tape, gauge sticks, industrial gloves, and liquid pipe compound that companies use to prevent erosion in the pipelines.
“We found out that we fit well with midstream,” Battista says. Supplying the construction phase of the drilling process could land a company such as his a big shots in the arm in terms of volume orders, but ultimately, those rigs are dismantled and moved and construction stops. Midstream operations, on the other hand, provide a longer-term customer base that allows for steady growth for the company.
Battista says when the MarkWest Houston project was first announced, he immediately wanted to wedge his foot in the door and establish a customer base at the ground floor of this industry. “We thought we could get in and talk to them, tell them what we specialize in, and work hard. It started with just me handling that account — now I have two others working on it.”
He also found that midstream companies are more likely to work with local vendors, instead of out-of-town contractors or suppliers. “This industry is totally different,” he observes, “they want to work with the locals.”
Late last year, the company ordered 1,100 fire-resistant coats in anticipation of the coming cold months. “We’re down to about 300,” even with what turned out to be a mild winter. “You’ve got to have these in stock, or they’ll go somewhere else.”
Since the shale deluge hit, Sunnyside’s business has risen exponentially, Battista reports. In 2009, the company saw its business double. The next year, business doubled again. “During the third year of this, we had 50% growth and we’re looking at 60% growth this year,” he reports.
Today, about half of the company’s business is related to gas and oil, Battista reports. “In the next year or two, it’ll probably be 75% of our business,” he projects.
Battista says that he’s witnessed nothing short of a complete transformation of the region’s economy over the last three years. “We’re going through a revolution and it’s happening so fast we don’t even realize it,” he says. “I feel that I’m walking amongst the Carnegies and the steel world again.”
EDITOR’S NOTE: This story was first published in the April edition of The Business Journal. CLICK HERE to subscribe.
Copyright 2012 The Business Journal, Youngstown, Ohio.