People often tell me I’m being unrealistic in thinking that the Dragonpipe (the Mariner East 2 pipeline) can be stopped. The forces behind it are too powerful, they say. I decided to outline an answer with this blog post.
There are five main issues that come up in discussions of the Dragonpipe. Four of them represent possible reasons to delay or halt its construction:
- Safety issues
- Environmental issues
- Land-use and siting issues
- Ownership issues and eminent domain
On the other side, there is a single factor pushing the Dragonpipe project forward: economics. The presumed profitability of the pipeline has allowed Sunoco/ETP to cajole and pay off those who otherwise might have opposed it, and to raise huge quantities of money from investors.
I won’t go into the first four of these issues here. (They are topics of past and future blog posts.) Instead, I will focus on economics.
It’s all about ethane and plastic. The core business idea behind the Dragonpipe is simply this:
The Dragonpipe is a mechanism for Sunoco/ETP to make money transporting ethane as one step in the production of plastics.
There are many other minor factors, but this is the heart of the economic argument. Here is a diagram that shows the steps involved.
Note that I am focusing on ethane and not on the other gases involved in “natural gas liquids” that are also byproducts of fracked natural gas. That is because ethane is by far the most abundant and by far the most valuable of them. Sunoco/ETP cares only about ethane. Similarly, I am focusing on plastic as the end product.
Virtually all ethane is converted to ethylene, and the majority of ethylene is used for plastics. The conversion of ethane to ethylene is done at very high temperature in a cracking plant, which is a large, multi-billion-dollar facility. Most US cracking plants are on the Gulf of Mexico.
Changes in supply and demand. The Dragonpipe was designed for an economic situation that was attractive a few years ago, but that window is slowly closing. Fracked gas produced abundant ethane in the Marcellus shale of western Pennsylvania. At the same time, European refineries were being operated below capacity or shut down due to declining amounts of ethane from wells in the North Sea.
The Dragonpipe and its companion dragon ships were designed to balance the ethane supply in Pennsylvania with the ethane demand in Europe. But that equation is changing by the day.
So, what could disrupt this process or make it less profitable? Here are some factors:
- Reductions in the volume of natural gas fracking. This could be either because a natural gas glut makes fracking uneconomical or because of environmental issues that result in restrictions on fracking. With less natural gas, there will be less ethane. There is currently a natural gas glut, and reason to believe that it will get much worse in the future. Pennsylvania fracked gas production is currently flat, but reduced prices will discourage further drilling.
- Competing pipelines that feed ethane to competing ports. There is already a competing pipeline (called Atex) taking ethane to Texas ports from the Marcellus shale, and another is under construction to take Marcellus ethane to a Canadian refinery and port on the Great Lakes. And several additional pipelines are under construction from Texas shale-gas fields to its ports.
- Pipelines to domestic cracking plants. Apart from the pipelines to refineries in Texas and Canada, cracking plants will be built close the source of Pennsylvania fracked shale gas. Shell is currently building a cracking plant south of Pittsburgh, and there are plans for others in that area. No transatlantic shipping will be required and much of the piping that can deliver ethane to it is already in place, making the whole process much cheaper.
- Declines in the market for plastic. Plastics are proving to be an environmental problem. Increasingly, countries are placing restrictions on their use and disposal. There is already an ethylene glut, and any reduction in the market for plastic will make it far worse.
- Declines in the market for ethane itself. Ethane is used for making ethylene, but it isn’t the only source. Ethylene can also be made from petroleum—and fracking has produced an oil glut too.
- More fracking in other countries. The export market for ethane will disappear if other countries can get it themselves or from their neighbors. Fracking is in its early stages in many parts of the world.
Each of these factors (and others) would result in a reduction in the demand for the service the Dragonpipe supplies: transportation of ethane to Marcus Hook. As a result, there would be fewer customers, lower prices, and ultimately, lack of profitability. If there is less ethane produced, demand for ethane drops, and the available ethane goes somewhere else. Ultimately, the Dragonpipe would have to be shut down—if it ever opens in the first place. (The dragon ships won’t be retired—they will simply load up with ethane in Texas or Canada rather than Marcus Hook.)
Delays will hurt the Dragonpipe. Competing pipelines are supposed to be completed over the course of the next 18 months. The Shell cracking plant near Pittsburgh will take 3 years to complete. Many new ships for ethane transport are being built to serve Texas ports. Several are already in service. As these resources become available, the Dragonpipe will make less and less economic sense.
If construction is delayed long enough, it will become uneconomical to complete the pipeline. That is one way the pipeline can be stopped. The other four issues mentioned at the beginning of this post provide a more immediate path to slowing down and perhaps preventing the completion of the pipeline, and they have been the main focus of this blog up to now. But in the long run, it could well be economics that puts the final nail in the Dragonpipe’s coffin.