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Shale Gas Drives Vertical Integration

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.

Wet Gas

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.

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Shale Gas Drives Vertical Integration

Vikram Rao, Executive Director, Research Triangle Energy Consortium

01 April 2014

Volume: 66 | Issue: 4

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