Range Finds a Home on the Mariner East

By Matthew DiLallo - October 2, 2012 | Tickers: CHK, EPD, MWE, RRC, SXL | 0 Comments

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 “You might be a redneck if…the blue book value of your truck goes up and down depending on how much gas it has in it.” - Jeff Foxworthy

While it’s not a direct correlation, but an energy pipeline has no real value until you start piping a liquid product through it.  That’s one reason Sunoco Logistics Partners (NYSE: SXL) can rest a little easier knowing that their Mariner East project will have a continuous supply of natural gas liquids flowing through for the next 15 years.  At 40,000 barrels per day, Range Resources (NYSE: RRC) will be the anchor shipper on the project supplying about 60% of the project’s capacity.  It’ll be evenly split between propane and ethane.

Mariner East is a very important project for the Marcellus and Utica Shale as it’s one of the major projects working to rescue the stranded NGL’s that are being produced.  Specifically, it is a pipeline, processing and export project.  It will connect the liquids rich region of southwest Pennsylvania as the project stretches from a MarkWest Energy Partners (NYSE: MWE) processing facility near Pittsburgh to Sunoco’s existing infrastructure and international port at its Marcus Hook facility near Philadelphia.    

One of the more interesting aspects of this deal is that Range is eventually going to be shipping 20,000 barrels per day of ethane which will go to Sunoco’s Marcus Hook facility for export.  They’ve already lined up a 15 year contract with a European petrochemical manufacturer for 100% of their ethane. While the push against “dry” natural gas exports gets a lot or press, we’re already exporting NGL’s.  Companies like Enterprise Products are already exporting record amounts of propane and the Range deal is just the tip of the iceberg as far as Marcellus and Utica NGL exports go. 

The completion of Mariner East in 2015 adds a third option to transport Range’s NGL production. They’ve previously signed on to the Mariner West to transport ethane from MarkWest’s processing facility to a petrochemical complex in Sarnia, Ontario.  They’ve also signed on to join Chesapeake Energy (NYSE: CHK) on Enterprise Product’s (NYSE: EPD) ATEX Express project which will transport ethane to the petrochemical complexes along the Gulf Coast.  These three projects provide Range with substantial flexibility to get their product to market.

These three projects alone should provide enough take away capacity for about 30% of Range’s estimated 1 billion barrels of NGL production in the region.  As additional projects come online and the local petrochemical market develops it will give Range even more options for their NGL’s.  They believe that by selling what they produce separately they can add between 35 and 45 cents per MCF to their bottom line which is not an insignificant number. 

We’re really starting to see things come together in the energy market to unlock our vast potential.  Chesapeake is investing a billion dollars over the next ten years through their Chesapeake NG Ventures to identify and invest in infrastructures and technologies that will increase demand for natural gas.  While one of the biggest obstacles continues to be lack of infrastructure and Sunoco Logistics, MarkWest and Enterprise are investing billions of dollars to get the gas flowing to new markets and new customers.   

Finally, we're starting to see a real value chain developing with assets linking together.  MarkWest is providing some of the key processing and fractionation infrastructure with Sunoco Logistics and Enterprise are providing the key takeaway capacity to the region.  These integrated projects lower costs and increases margin for shippers like Chesapeake and Range making it a very exciting time for energy investors.

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