Using the Marcellus and Utica to Make Fat Yields Fatter

Natural gas producers in the Marcellus/Utica region are being forced to forgo larger profits as they reject ethane production due to lack of takeaway capacity, but don't worry -- MarkWest and Sunoco Logistics are on the job.

Apr 14, 2014 at 4:16PM

Bentek Energy forecast that U.S. natural gas production will explode upwards by 12.4 Bcf/d (versus 2013 levels) by 2018. How will America get there? On the back of the Marcellus and Utica shale plays. Expectations call for natural gas output from the Northeast to grow by 7.1 Bcf/d over that same time period. As output rises, so does the demand for storage facilities, fractionators, and pipelines, which opens up wonderful opportunities for midstream operators like MarkWest Energy Partners (NYSE:MWE)

Gas up for growth
47% of MarkWest Energy Partners' operating income this year will come from its investments in the Marcellus play. MarkWest's assets in the area include 615 MMcf/d of gas gathering capacity, 2.2 Bcf/d of gas processing capacity, 172,000 bbl/d of fractionation capacity, and 90,000 bbl of NGL storage capacity with access to an additional 900,000 bbl of propane storage. 

All in all, MarkWest Energy Partners' strategy seems to have paid off as natural gas output continues to rocket upwards in the Marcellus region. To keep up the momentum, MarkWest will keep building out its processing capacity in the area. This year MarkWest Energy Partners plans on adding roughly 900 million cubic feet a day of cryogenic natural gas processing capacity through five expansions of its existing processing plants. Beyond 2014, MarkWest has three additional expansions that will add 600 million cubic feet a day of processing capacity in the Marcellus region.

To further enhance its unit holders' return, MarkWest is investing heavily in the neighboring Utica play. MarkWest Energy Partners estimates that 14% of its 2014 operating income will come from the Utica shale. With plans to add 600 million cubic feet a day of dry gas processing capacity and 78,000 bbl/d of fractionation capacity, MarkWest Energy Partners will continue to see the Utica play become a larger part of its operations as the distributable cash flow from its Utica assets continues to grow. 

MarkWest Energy Partners is well-positioned to capitalize on the continued output growth from the Marcellus and the Utica shales, but more needs to be done. Natural gas liquids production is rapidly climbing higher, and this has put quite a strain on the existing oil and gas infrastructure. MarkWest is expanding its ability to process NGL in the Northeast, but that doesn't solve the ethane problem.

Due to the inability of E&P players to ship ethane to ports so that it can be exported to foreign markets, 200,000 bpd of ethane was rejected in 2013. 2014 could see that rise to 450,000 bpd, which is simply a waste. To generate more distributable cash flow while also alleviating a major problem for NGL producers, MarkWest has teamed up with Sunoco Logistics Partners (NYSE:SXL) to connect the Marcellus and the Utica to the rest of the world. 

Moving ethane to international markets
International petrochemical plants have sizable demand for ethane, but the problem is that there are few ways to transport the output from the Marcellus and the Utica to those markets. To try to fix this problem, MarkWest Energy Partners and Sunoco Logistics Partners teamed up to build the Mariner West pipeline. 

The Mariner West carries ethane from the Marcellus/Utica region up to Ontario so it can be sold to petrochemical producers in Canada. When oil and gas producers have to reject ethane, they are throwing away potential profits because they have no other choice. Given a choice, oil and gas producers would much rather sell their ethane output. This is why demand for pipelines that can transport ethane and other natural gas liquids to profitable markets will keep rising higher, in tandem with production growth.

Initially the Mariner West could only carry 20,000 bpd of ethane to Canada, but by the end of the first quarter of 2014 that should rise to its full capacity of 50,000 bpd. This is just the beginning, as Sunoco Logistics Partners has stated that the pipeline's capacity "can be scaled to support higher volumes as needed." As the Mariner West pipeline reaches full capacity and the companies expand it to meet future demand, MarkWest Energy Partners and Sunoco Logistics Partners will be able to rake in larger streams of distributable cash flow. 

To truly connect the Marcellus and Utica shale plays to the rest of the world, MarkWest and Sunoco Logistics are building the Mariner East pipeline as well. Initially the Mariner East will transport 70,000 bpd of ethane and propane to the Marcus Hook facility for processing and shipment to international markets. Due to the huge amount of pent-up demand for selling natural gas liquids to foreign markets, MarkWest and Sunoco are already talking about having another open season and further expanding the capacity of the Mariner East pipeline. Just as with the Mariner West pipeline, the Mariner East will offer years of cash flow growth as its capacity "scales upwards."

Foolish conclusion
For investors who look to play the natural gas revolution in America, MarkWest Energy Partners may serve as one of the best options. Because midstream operators like MarkWest Energy Partners get paid (mostly) based on volume and not on what Wall Street thinks hydrocarbons are worth, they don't face risks from fluctuating oil and gas prices (short of a major decline in prices, which could curb production levels). 

MarkWest Energy Partners pays out a 5.3% distribution that is slated to keep on growing, especially since MarkWest is guiding for its distributable cash flow to grow by 24% to 43% this year as more projects come online. Investors who want stability, a high yield, and growth should take a closer look at this master limited partnership. 

3 stock picks to ride America's energy bonanza
Record oil and natural gas production is revolutionizing the United States' energy position. Finding the right plays while historic amounts of capital expenditures are flooding the industry will pad your investment nest egg. For this reason, the Motley Fool is offering a look at three energy companies using a small IRS "loophole" to help line investor pockets. Learn this strategy, and the energy companies taking advantage, in our special report "The IRS Is Daring You To Make This Energy Investment." Don’t miss out on this timely opportunity; click here to access your report -- it’s absolutely free. 


Callum Turcan has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers