Pipeline capacity out of the Southeast/Gulf Coast region is expected by Bentek Energy LLC to fill in less than two years, with outbound capacity utilization to hit 100% by winter 2009-2010. Look for aggravated gas-on-gas competition between the region and Rockies producers, the research and analysis firm warns in a new report.
In the third portion of its "I of the Storm" report series Bentek evaluates the impact of anticipated changes in gas markets nationwide as more than 75 gas pipeline, storage and liquefied natural gas (LNG) terminal projects are completed and go into service in the Southeast/Gulf Coast region between now and 2012.
The report explores current tight outbound pipeline capacity in the region, existing bottlenecks that constrain deliveries to such key markets as Florida and the Northeast, and insufficient planned outbound capacity expansions. This sets the stage for future excess supply buildup in the Southeast/Gulf Coast by as early as 2010, just as more production comes onstream and moves east into the region from hot unconventional shale gas basins. This regional supply surplus will create market imbalances with implications for other regions, shifting flow patterns and creating price differential disruptions in the backyard of the Henry Hub, Bentek said.
Higher gas prices, favorable market conditions, improved market access and significant cash flow and investment capital are spurring an unprecedented increase in gas production in the Barnett Shale and Deep Bossier Sands in Texas, the Woodford Shale in Oklahoma and the Fayetteville Shale in Arkansas, the Golden, CO-based research and analysis firm said.
"We anticipate an increase of 11.3 Bcf/d of additional wet gas production and 9.4 Bcf/d of dry gas production flowing into the Southeast/Gulf between January 2008 and December 2012," said Rusty Braziel, Bentek managing director. "Over the next five years, we expect new gas-fired power generation facilities, industrial load and some residential/commercial demand to drive a modest annual 1.5% demand growth from Texas to Virginia. However, this demand growth is seriously outstripped by the 6.9% average annual supply growth projected in the Southeast/Gulf during the same period."
One of the most important consequences of this production growth is that pipeline capacity out of the Southeast/Gulf region will fill in less than two years, Bentek said. Outbound pipeline capacity utilization is projected to be at 100% by winter 2009-2010 with the demand for capacity more than 2.5 Bcf/d greater than that available on both current and planned pipelines out of the region. New pipeline expansions will help reduce this gap in 2011 and 2012, but not enough to eliminate the Southeast regional excess supply buildup problem altogether.
"This surplus gas will have to go somewhere, and there are several likely scenarios for gas flow displacement," Braziel said. "Gas traditionally moving into the Southeast/Gulf region from the Midcontinent and West Texas will most likely be displaced into lower-value markets in the western U.S. pipeline corridors to the Midwest and Ohio Valley filled with Southeast/Gulf supplies will likely displace Canadian imports. This scenario will likely aggravate the gas-on-gas competition between Southeast/Gulf region producers and Rockies producers as well. The unmistakable conclusion is that more outbound pipeline capacity infrastructure and debottlenecking projects are needed sooner rather than later to be able to move increasing supplies out of the region into higher-demand markets that can absorb the increased gas flow."
Conclusions of the third installment of Bentek's report series are:
The first part the series looked at Southeast/Gulf Coast pipeline development and found that by the middle of next year 40 infrastructure projects in the region will shift gas flow patterns, disrupt regional pricing relationships and realign the value of transportation capacity (see NGI, March 31). The second edition of the report series said there will be more gas storage withdrawal capacity in the Gulf Coast/Southeast than pipeline takeaway capacity to handle it (see NGI, May 5).
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