"Replumbing" the natural gas industry to better connect growing production and demand centers around the nation will have various impacts on gas flows, but won't do much in the near term to dampen double-digit gas prices, Porter Bennett, president of Bentek Energy, told an industry audience at GasMart 2008 in Chicago. Bennett was part of a panel that looked at market fundamentals of weather, storage and pipeline flows.
Using the vantage point of his firm's data gathering and analysis from the industry's 25,000 major pipeline flow points that Bentek tracks several times daily, Bennett stressed that production is growing dramatically -- a 4 Bcf/d increase in one year at the beginning of this year when it hit 60 Bcf. "Actually, in February this year production was up 6 Bcf/d," he said, noting the "story isn't how much gas is being produced, but where it is being produced."
The added pipeline capacity being built because of the Rockies and other factors is going to be "filled very quickly," Bennett said. "We think there is a very high probability that you are going to see a lot of this pipeline capacity filled very soon, within a couple years, and this will push prices in different ways. All of it boils down to the fact that you need to pay attention to the fundamentals. There are a lot of risks and a lot of rewards associated with these changes."
Just in the past five years the U.S. supply picture changed dramatically with the onslaught of the Rockies and Barnett Shale basins, changing a fundamental that is "driving lots of behavior in the industry," Bennett said. A lot of the growth today comes from producing areas that didn't exist 10 years ago, and now the pipelines to accommodate that growth are still being built.
A problem arises from the fact that all of the pipelines -- old and new -- have constraints that impact there ability to take gas off of the Rockies Express Pipeline (REX). The constraints push out gas flowing from the Permian and Anadarko basins, pushing down prices and making them more competitive with the San Juan Basin, Bennett said.
Bennett tallied up 75 projects totaling 55 Bcf underway in the Rockies, Gulf Coast and surrounding areas, but he comes up with a sharp shortage of excess capacity (6 Bcf off-peak and 3 Bcf on peak) to take new supplies away. The end result is going to be more pressure upward on gas prices.
Production in the Rockies has increased on average by 1.2 Bcf/d since this time last year, said Bennett, calling it a "very strong surge," resulting in what he called "the hoped-for experience of better prices from the Rockies turned out to be a five-day event." For sure, by the end of next year, there will be some real capacity problems, he thinks.
"We're going to start to see some capacity problems maybe this summer, and for sure next summer. No matter how fast the new pipeline construction happens it is probably not going to happen fast enough to avoid the problem. So there is no doubt that the United States is in the midst of a major replumbing effort to restructure gas supply infrastructure, which during the next three years will have significant implications for the market in significant disruptions of historic flow patterns and basis relationships."
REX was the impetus of this restructuring, but now those impacts are going to be compounded with all the infrastructure and production changes in the Gulf from the multitude of storage, pipeline and liquefied natural gas projects that are collectively mammoth in scope -- not to mention later impact from additional projects in the Northeast and the West, Bennett said.
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