Marathon plans northeast alkylation plant
At its analyst day event in New York, New York, today, the companies said they would build a plant processing butane into alkylate, a high-octane gasoline blendstock, for distribution through the northern midcontinent and into the northeast. The plant remains under development but has a planned start date of the second half of 2020.
"It's a technical challenge, an engineering challenge, but there's a lot of margin," MarkWest chief executive Frank Semple said. "Alkylate is kind of a magic elixir."
The project is part of up to $9bn in investment through the soon-to-be combined Marathon Petroleum Logistics and MarkWest.
The project is driven by a combination of lower octane production from refineries processing shale crudes ill-suited to produce the blendstock and expected increased demand for higher-octane fuels for more efficient engines, the company said. The US refining industry expects tight octane supplies that drove attractive premiums last summer to return this year.
The project was an example of projects that "frankly, on a standalone basis, MarkWest could not handle on its own," Semple said. It was one of the first MarkWest had discussed with Marathon before merger talks.
Although lacking the oil potential of the more famous Bakken or Eagle Ford basins, Marathon Petroleum was an early believer in the Utica fields near its Ohio and Kentucky refineries. The company in 2011 targeted 12,000 b/d of trucked Utica production for its 78,000 b/d refinery in Canton, Ohio — 15pc of that facility's capacity. The company started up a condensate splitter at Canton for other Utica production in December, and another splitter at its nearby 240,000 b/d refinery in Catlettsburg, Kentucky, in June.
MarkWest and Marathon Logistics could also repurpose the Centennial pipeline to move natural gas liquids into the US Gulf coast. Such a line would compete with Sunoco's Mariner East project currently under open season. The companies are also exploring additional east coast terminals for blending or export.
"This is not a question of if, but a question of when," Semple said.
Semple had rebuffed the idea of a broader transaction last February at a dinner in Denver set up by Marathon Petroleum chief executive Gary Heminger. Heminger brought it up again a month later amid ongoing discussions of potential joint ventures. By the end of March the two executives were discussing the rough outline of a deal with the blessing of MarkWest's board.
The board decided by the end of April that it made more sense to go it alone, and talk on a purchase faded away. But an unidentified natural gas company approached MarkWest at the end of May, rekindling talks. By the end of June, with commodity prices crumbling, the MarkWest board was deciding that it would be "increasingly difficult" to increase distributions and finance projects.
Still, Marathon Petroleum had to twice raise its offer, nearly doubling an initial $3.37 per unit offer, before securing approval granted by 80pc of voting units earlier this week. The sale came over the objections of co-founders John Fox and Brian O'Neill.
"The vision Brian and I had for MarkWest when co-founding this company did not involve building one of the most admirable natural gas processing franchises in the industry just to sell out at the bottom of the market!" Fox said in a mid-November statement. "We're handing it over to Marathon Petroleum for pennies on the dollar."
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