Houston (Platts)--2Sep2010/721 pm EDT/2321 GMT

Expanding supplies of natural gas liquids derived from unconventional sources, such as the Eagle Ford and Marcellus shales and Bakken formation, is expected to benefit the cost structure of the North American petrochemical market, industry observers said in a webinar Thursday. As much as 250,000 b/d of additional ethane supply could hit the market by 2012, and put downward pressure on ethane prices in a market that has limited demand, participants said. In a conference call with the North Dakota Pipeline Authority, Dan Lippe of consulting firm Petral said plentiful NGL supply, especially ethane, will contribute to long-term, strong margins for the US and Canadian petrochemical industry. "Favorable economics encourage ethylene producers...[which will] substantially increase the industry's ethane cracking capability," Lippe said. Lippe said such favorable cracking economics will give US ethylene producers competitive advantages compared to European and Asian producers, adding that the wide differentials between crude oil and cheaper North American natural gas prices also creates an encouraging economic environment for midstream and petrochemical producers. Region-specific ethane production from Bakken and Marcellus will be sold to Canadian ethylene producers, Lippe said. "Canadian petrochemical companies are most comfortable with long-term supply contracts with ethane prices based on natural gas shrinkage costs, plus appropriate gas processing plant operating costs, plus some fixed margin," Lippe said. "In that kind of environment, ethane prices for supply from Bakken and Marcellus will surely be lower than in Mont Belvieu," Lippe added. Current US ethane production is approximately 850,000 b/d, according to director Gord Salahor of Mistral Energy, which will own and operate the proposed ethane-only Vantage Pipeline. The proposed Vantage Pipeline will connect the Bakken formation to ethylene producers in Alberta, Canada. The Vantage Pipeline is a 10-inch-diameter, 430-mile high-pressure ethane-only pipeline with initial capacity at 40,000 b/d, expandable to 54,000 b/d. The pipeline proposed will be sent to US and Canadian regulators for approval at the end of November. Target completion and first in-service date is third-quarter of 2012, Salahor said. "The Alberta market offers an alternative for the Bakken and can absorb 60,000 b/d [of ethane supply]," Salahor said. Future potential supply additions from shale plays, Salahor said, include 60,000 b/d from Eagle and 80,000 b/d from the Marcellus shale. LNG imports could bring 50,000 b/d of ethane supply, Salahor added, and the Bakken formation could bring anywhere from 40,000 to 80,000 b/d of additional ethane supply. With the risk for nearly 250,000 b/d of additional ethane supply on top of 850,000 b/d currently produced, "there are some views that this could put pressure on ethane prices," Salahor said. Midstream operator and producer Oneok Partners plans to invest $1.1 billion in the Bakken formation, with several expansion projects in that region, including a $700 million NGL pipeline from the Williston Basin in North Dakota to a fractionation hub in Bushton, Kansas. Oneok also plans to increase NGL fractionation capacity at its Bushton hub from 150,000 b/d to 210,000 b/d. "The Bakken has to be the most remarkable find in several decades...with over 4 billion barrels of crude...and gas that is rich in NGLs," Oneok's Chief Operating Officer Terry Spencer said. --Steven McGinn, steven_mcginn@platts.com Similar stories appear in Gas Daily. See more information at http://www.platts.com/Products/gasdaily/