When I first learned some of the details of the pipeline plan, I wondered why on earth Sunoco/ETP would spend billions of dollars on the complex, controversial, and risky proposition of building a pipeline carrying dangerous products right through the heart of the Philadelphia suburbs.
Clearly, the Dragonpipe (the Mariner East 2 pipeline) must have the potential to be highly profitable. But how, exactly, did the company plan to make its money?
The answer can be pieced together from various company financial filings and petroleum industry reports. In brief: the Dragonpipe (along with the companion fleet of Dragon ships) is an answer to two seemingly unrelated problems: an oversupply of fracking byproducts in western Pennsylvania and the decline of oil and gas production in the North Sea.
Problem #1: too many fracking byproducts. The volume of fracked natural gas being produced in Pennsylvania and neighboring states has been growing exponentially, with drillers putting in as many wells as they can. Fracked gas is primarily methane, but there are other gases in the mix that emerges from the well. Methane is a small molecule, with only one carbon atom. The other gases are “heavier”, with two (ethane), three (propane), or four (butane) carbon atoms. By refrigerating and compressing these heavier gases, they can be liquefied; this is what is referred to as “natural gas liquids”.
A limited amount of these gases is permitted in the “natural gas” delivered to consumers, but Pennsylvania’s gas contains too much of them, so they have to be separated out, a process called fractionation. But what happens to these byproduct gases? They are highly explosive and difficult to ship and store. They have an economic use as inputs to the production of plastics, but the first step in that process, “cracking” (which results in the removal of some of the hydrogen), requires a massive petrochemical plant. There is no such plant in the eastern US. Shell has plans to build one near Pittsburgh, but that will take years.
Problem #2: the decline of North Sea natural gas. On the other side of the Atlantic, there is a different problem. The oil and gas fields of the North Sea, which have been the primary source for the European petrochemical industry for several decades, are in decline. Production in older wells has stopped, and far fewer new wells are being drilled. This has had many economic effects, and one is partial shut-down of European cracking plants. There is now an excess of cracking capacity but no raw material to feed it.
Now you see where the Dragonpipe and the Dragon ships come in. Energy Transfer Partners, like its recently-merged sister company, Sunoco Logistics , is not involved in fracking, and it is not involved in cracking. But it is involved in transporting oil and gas. It formulated a plan to get the excess gases from Pennsylvania to Europe, by compressing them into a liquid, pumping them through the Dragonpipe, and sending them to Europe in a fleet of unique Dragon ships specifically built for this particular task. It has already proved that it can do this on a small scale with the Mariner East 1 project, a repurposed propane pipe that began feeding compressed gasses to the Dragon ships in November of 2016.
If Sunoco/ETP can make this work, it will be hugely profitable. But it is a big gamble. The company has already spent billions on its fleet of eight dragonships (the subject of another post), and it will need many more (or, as it has been rumored, its own cracking plant in Pennsylvania) to handle the volume from the Dragonpipe.
One way or the other, tens of billions of dollars more will need to be invested. The people taking the financial risk will reap the financial profits. And the people of Pennsylvania? They will risk life and limb but will not profit at all.