Dominion, Caiman enter $1.5B partnership

January 10, 2013
dsp Shale Play

By CASEY JUNKINS

Shale Play

NATRIUM, W.Va. - The plant has yet to process its first barrel of butane, but Dominion Resources and Caiman Energy have struck a $1.5 billion deal to operate the Natrium natural gas processing facility, along with other Utica and Marcellus shale infrastructure.

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The $500 million Dominion plant is scheduled to open early this year. Officials with both Dominion and Caiman believe the plant's location along the Ohio River in Marshall County will allow it to be a centerpiece in the burgeoning Utica and Marcellus shale industries in Ohio and West Virginia.

"The Utica Shale has enormous potential to provide jobs and revenues for the local Ohio economy," said Thomas F. Farrell II, Dominion's chairman, president and chief executive officer. "Because the portion of the Utica Shale targeted today produces a rich gas stream, gathering and processing capacity must be developed so that the natural gas and valuable natural gas liquids can be separated and sold."

Dominion and Caiman will operate the Natrium plant and other infrastructure under the badge of Blue Racer Midstream. In the natural gas and oil industry, the term "midstream" broadly refers to pipelines that gather and transport gas and oil, processing plants, fractionators and compressor stations.

This deal also includes Dominion's gathering pipeline system throughout eastern Ohio, which includes a line connecting to the Natrium plant on the other side of the Ohio River in West Virginia. Dominion officials have said they will be able to process 200 million cubic feet of natural gas per day upon completing the Natrium project's first phase, with the possibility of expanding capacity to 400 million cubic feet per day once the plant is completely finished.

Once the wet Marcellus and Utica shale gas travels to the Dominion plant via the company's pipeline network, the ethane, butane, propane and other natural gas liquids will be separated from the "dry" methane gas so that all the products can be individually marketed.

A company such as Chesapeake Energy - which has agreed to supply the Dominion plant with its gas stream - is known in the industry as a "producer" because it sells the gas that it pumps out of the ground. Because the wet gas requires processing before it can go to market, Chesapeake and other producers send their gas to companies such as Dominion, Williams Partners or MarkWest Energy for processing.

Once separated from the gas stream, the propane and butane will be kept in tanks on the Dominion site to be marketed. However, this cannot be done with ethane because of the product's volatility, so Dominion is looking to ship the ethane to a user.

In April, Caiman sold nearly all of its Marcellus Shale assets - most substantially the processing plant located at Fort Beeler along U.S. 250 between Moundsville and Cameron - to Williams Partners for $2.5 billion. Caiman is now investing in a new Upper Ohio Valley venture.

"Dominion brings well-positioned assets and experienced operations for gathering, processing, fractionating and delivering natural gas and liquids produced from the Utica Shale field," said Jack Lafield, Caiman's chairman and chief executive officer. "With our experience in developing midstream businesses and our $800 million in equity commitments for the joint venture, we can quickly leverage Dominion's assets, expertise and relationships to meet producers' needs as they fully develop their natural gas acreage."