RICHMOND, Va. – Dominion Resources Inc., parent company of Dominion East Ohio Gas, is partnering with a Dallas company to build natural gas processing plants and pipelines to the plants from gas wells in Ohio and parts of Pennsylvania.
In a joint statement issued Thursday, Dominion and Caiman Energy II, LLC said they would sign a $1.5 billion joint venture by the end of the month.
Blue Racer Midstream LLC will be an equal partnership between Dominion and Caiman, with Dominion contributing existing equipment and facilities valued at about $800 million and Caiman contributing the additional funding over time, the companies said.
The development is expected to help the state’s gas and oil industry grow more smoothly because it will provide the necessary pipeline capacity and processing plants immediately to market the gas as it flows from the new wells.
The absence of gas processing plants and pipelines to newly drilled remote wells has hampered Ohio shale gas development, say analysts, creating a kind of chicken and egg situation because such expensive projects could not be built without the certainty that the wells would be drilled.
Dominion will also contribute a processing plant now under construction in Natrium, W. Va., just across the Ohio River, as well as a large diameter pipeline already connecting the plant to Dominion East Ohio’s gathering pipeline system. The plant is being built next to an older but similar facility.
Earlier this year, East Ohio converted part of its major north-south pipeline system in Ohio to move gas from Ohio Utica shale fields to the Natrium processing plant. The lines were built decades ago to move gas from West Virginia and southern Ohio to the heavy industries in Northeast Ohio, industries that have either shrunk or disappeared.
Blue Racer Midstream’s initial plan is to convert more of East Ohio’s major pipelines to “wet gathering lines” and feed the unprocessed gas from thousands of wells the industry anticipates will be drilled in the Utica shale to the Natrium plant.
The plant will clean up raw or rich gas from the wells, removing oils and then separating the more valuable industrial gases — butane, propane, and ethane — from the methane that will become heating or natural gas.
The various gases and oils can then be shipped from the plant to multiple markets, said the companies, either by truck, railroad, pipeline or barge facilities.
“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, in a prepared statement.
Jack Lafield, Caiman’s chairman and chief executive officer, said Dominion “brings well-positioned assets and experienced operations for gathering, processing, fractionating and delivering natural gas and liquids produced from the Utica shale field.”
Three other similar projects are also under way.
Earlier this month, a partnership of companies led by M3 Midstream, LLC, of Houston, announced its $1 billion gas processing plant under constructionin Columbiana County is on schedule to open in May 2013. Chesapeake Energy had been part of the group but sold its share.
In early November, two Denver companies, MarkWest Energy Partners, a gas transportation and processing company, and Antero Resources, a gas producer, partnered with a Texas investment company, the Energy and Minerals Group, to build processing plants and pipelines in Nobel County. State officials estimated the initial investment at $500 million.
In July, NiSource, Inc., parent company of Columbia Gas of Ohio, announced a joint venture with Texas exploration and production company Hilcorp Energy Co. to build about 50 miles of pipeline and a gas processing plant in the state. NiSource estimated the initial cost at about $300 million. In this latest announced project, Dominion intends to contribute its existing gas gathering pipeline system with an eye toward expanding its capacity to move at least 2 billion cubic feet of natural gas per day.