The build-out of pipeline infrastructure in recent years has contributed to the efficiency of the nation's natural gas delivery grid, as previously stranded gas can now reach high-demand markets. New trading activity and pricing locations have emerged, prompting NGI to establish new price indices for Transwestern San Juan (TSJ) and the Clarington, OH, terminus of Rockies Express (REX).
In the case of Clarington, it was obvious what drove the need for a new index. The completion of mega-pipe REX with the extension of REX-West to Lebanon, OH, had already tightened Rockies basis relative to Henry Hub to the point that on a few occasions last year CIG had traded at parity or slightly above Henry Hub, a producer noted. Then, despite a force majeure event in mid-November that shut down five Clarington-area delivery points until late January, the greater access to Rockies supplies (along with rapidly increasing Marcellus Shale production) was expected to eventually weaken the Northeast's reputation as the typically most expensive market area in North America.
The case for TSJ was a little harder to pin down, but a couple of sources pointed to the start-up of service on the pipeline's Phoenix Lateral about a year ago, making TSJ a more important pricing point.
Bentek Energy analyst Rocco Canonica said the Phoenix Lateral likely was the primary factor in driving the emergence of TSJ as an index-worthy point. Total San Juan Basin production so far this year is 2.7 Bcf/d in Bentek's flow sample, down from a 2.9 Bcf/d average in 2009, Canonica said. However, Transwestern volumes from the basin were up slightly to 1.2 Bcf/d last month as opposed to averaging 1.1 Bcf/d in 2009. He noted that in addition to Transwestern and El Paso, Southern Trails, Northwest and TransColorado are pipelines with San Juan connections.
Canonica said the next new index that is likely to be needed is Tennessee's 300 Line through the Marcellus Shale in northeastern Pennsylvania. Shale supplies in West Virginia and southwestern Pennsylvania already have greater access to Northeast markets through connections with Texas Eastern M-2, Dominion and Columbia Gas.
Energy Transfer Partners (ETP) announced the completion of Transwestern's Phoenix Expansion Project in late February 2009. The Phoenix Lateral added 500 MMcf/d of capacity (with the capability of expanding to 1 Bcf/d) to meet the gas needs of Phoenix and surrounding areas, ETP said.
A Southwest utility buyer perceived the Phoenix Lateral as the main reason for increased interest in San Juan supplies. It added liquidity to San Juan pricing, he said. Producers are trying to sell more gas out of the basin, and several regional utilities "want to help them fill the lateral," he added.
Clarington's initial first-of-month index came in at $5.54, a penny above Columbia Gas and 4 cents less than Dominion. The trading volume was 96,000 MMBtu/d in eight transactions.
The first TSJ monthly index was $5.38, about half-way between El Paso's two San Juan Basin pools, Bondad and non-Bondad, at $5.42 and $5.32, respectively. NGI received reports of 10 February baseload deals totaling 36,000 MMBtu/d.
Naturally, the volume and number of deals are expected to grow over time at both points.
In its daily debut in trading done Friday (Jan. 29) for Feb. 1 flow, Clarington fell short of its monthly index in averaging $5.42. However, it climbed along with most of the market during the first half of the week and averaged $5.70 Wednesday.
IntercontinentalExchange (ICE) reported that 129,500 MMBtu/d was nominated in 19 transactions on its system for Jan. 27 flows at Clarington. It was the first trading at five area delivery points (Tennessee Guernsey, Dominion Noble, Dominion Clarington, TETCO [Texas Eastern] Clarington and E OH Gas [East Ohio Gas] Clarington) downstream of the Chandlersville Compressor Station since they had been shut in Nov. 14 by REX following a rupture in Muskingum County, OH. The reopening of Clarington-area deliveries was believed to have given a small boost in Jan. 26 trading to Rockies prices, which saw the day's only gains amid softness in the rest of the market.
TSJ also began daily trading at $5.18, well below its first-of-month index. It also rode an overall rising price wave as the week went on, but unlike Clarington, TSJ was only able to reach an average of $5.37 Wednesday, a penny less than the monthly index.
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