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CenterPoint Inks Supply Deal With XTO; Looks to Construct $375M Pipeline

CenterPoint Energy Gas Transmission (CEGT) said it completed a deal to transport 600 MMcf/d of East and North Texas gas production for XTO Energy for 10 years on a new 168-mile pipeline between the Carthage Hub in East Texas and the Perryville Hub in northeastern Louisiana. CenterPoint said the $375 million pipeline will have an initial design capacity of 1 Bcf/d and could be in service as early as the winter of 2006-2007.

"It has been recognized by a lot of people in the industry for about nine months to a year now that there was going to be a need for pipeline capacity generally to move gas out of the Carthage area, and this has been driven by a lot of the activity that people have seen taking place in the Barnett Shale production area and the Bossier Sand production area," said Byron Kelley, president of CenterPoint Energy's pipeline group.

He noted that CEGT's project is among several that have been planned in the same general area to transport growing gas production out of East and North Texas to pipelines bound for markets in the Northeast and Midwest. For example, Energy Transfer, Gulf South and Texas Gas have partnered on a similar project linking all of their systems to bring about 1 Bcf/d of gas out of the Carthage area to the Perryville Hub and to the Henry Hub (see NGI, June 6).

Kinder Morgan has teamed up with Crosstex on a project that would deliver 700 MMcf/d of production from the Bossier Sand and Barnett Shale exploration plays to the Crosstex LIG system near Stonewall, LA (see NGI, May 30). It's unclear how those projects will be impacted by the CenterPoint deal with XTO.

XTO already has signed an agreement for upstream transportation of about 700 MMcf/d of gas out of producing basins to the Carthage Hub on more than 100 miles of new pipeline that will be built by Energy Transfer (see NGI, July 11).

"I think when you are just looking at moving gas from Carthage to Perryville there is a need for probably one project within the next three or four years, and then with the growth coming after that there will be a need either for an expansion of this or probably additional capacity at some point," Kelley said in an interview with NGI.

He said CenterPoint expects XTO to deliver the entire 600 MMcf/d by winter 2007-2007. XTO's Vaughn O. Vennerberg II, senior executive vice president, said the company's production volumes continue to rise rapidly across North and East Texas. "All the while, our natural gas marketing team is prudently managing for the best opportunities in infrastructure and economics. This agreement is another step in securing the firm transportation needed to access the compelling markets of the eastern U.S."

XTO is expecting a 30% increase in its gas production this year to about 1.1 Bcf/d in the fourth quarter. Next year it also is expecting double-digit production growth. It has identified about 1,700 drilling locations in its eastern region, which includes East and North Texas and North Louisiana. Production in the Freestone Trend in East Texas is expected to grow from about 497 MMcf/d to 730 MMcf/d over the next few years. Its Barnett Shale production also continues to grow rapidly. It was up 15% in the third quarter to 190 MMcf/d. XTO holds about 150,000 net acres in the Barnett Shale.

Kelley said the Perryville Hub will provide XTO with a liquid market and access to numerous other pipelines serving the Midwest and Northeast, including ANR Pipeline, Southern Natural, Tennessee Gas, Mississippi River Transmission, Columbia Gulf, Gulf South and Texas Gas. "We are aggressively developing the engineering, permitting, and other elements required for a FERC application and believe that by working cooperatively with the FERC, we can have these facilities in place to provide this much needed gas to the market for the 2006-2007 winter season," said Kelley.

CEGT plans to hold an open season possibly starting this week to solicit market interest in the project's remaining capacity. It also will evaluate an extension of the project to gain incremental access to pipelines primarily serving southeastern markets.

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