While over recent months the Marcellus and Utica shales have attracted most of the attention focused on shale gas supplies, the southeastern United States -- where the shale boom hit earlier -- is still dealing with the consequences of shifting supplies, according to a report by LCI Energy Insight and Energy Ventures Analysis.
Mainly because of growth from the Barnett, Haynesville and Fayetteville shales, the greater Southeast has seen the restructuring of regional hubs, compression of basis differentials within the region, supply resourcing with the aim of cutting transport costs and declining capacity factors on some legacy interstates crossing the region, the firms' analysis found.
At the Carthage Hub in East Texas, CenterPoint Energy's CP Line has added takeaway capacity, reducing the difference between inbound and outbound capacity at the hub. "This, in turn, appears to have caused the basis differential between the Carthage and Henry Hub to decline, even though the outbound capacity is still less than the inbound capacity at the Carthage Hub," the report said.
At the Perryville Hub in North Louisiana, capacity has and continues to grow. While the hub used to have capacity to handle about 2.5 Bcf/d, "...over the next several years this will change dramatically and, as a result, the overall capacity at the Perryville Hub will increase to about 9 Bcf/d," the report said.
Perryville is trending to become significantly larger than Henry, which has capacity of about 2.3 Bcf/d, according to the research firms. "This will cause the Perryville Hub, which is not widely tracked in the trade press, to grow in importance as a regional hub and potentially create a key physical alternative, but not a replacement, to the Henry Hub, which is the basis for the Nymex futures [contract]." Perryville pipelines have been stepping up to offer shippers additional services at the hub to streamline trading (see NGI, March 26).
While more pipeline projects have yet to come online, the addition of new pipeline capacity from west to east within the region is flattening basis differentials between the major East Texas hubs (e.g., Katy, Houston Ship Channel and Carthage) and the Southeastern hubs (e.g., Perryville, Transco Zone 4, Tetco M-1, FGT Zone 3 and Sonat, LA), the report said. "One driver of this flattening of basis differentials in the region is that the newer pipeline projects are more efficient in transporting gas than are existing regional pipelines."
The basis differentials to Henry Hub for both Carthage and Transco Zn 4 have calmed over the last couple of years. After averaging a 23 cent discount to the Henry Hub from May through December of 2009, the Carthage basis differential narrowed to an average of 9-10 cents below Henry for both 2010 and 2011, according to NGI's Monthly Bidweek Survey. Transco Zn 4 has shown a more consistent 1- to 2-cent premium over Henry Hub for those time periods, but the statistical standard deviation for the latter two years was lower than it was for the last seven months of 2009.
The authors predicted further compression of regional basis differentials as new pipeline projects come online and supplies from the Marcellus and Utica shales compete for markets within the Southeast. In a previous report the firms looked at developments in the Marcellus Shale and how they affect the gas market outside of that region (see NGI, Feb. 20).
"The combination of significant increases in shale production and the associated increase in pipeline capacity within the region has provided customers with new alternatives for their gas supplies," the report said. As examples, the authors cited segmentation of capacity on pipelines such as Columbia Gulf, Texas Gas and Texas Eastern Transmission as customers are able to source their gas closer to where they need it than in pre-shale play days.
"In addition to this resourcing of gas supplies phenomenon, some pipeline systems have started to see a decline in the overall capacity factors of their systems because of the growth of the Marcellus and Utica shale production in the Northeast, which historically has been a major market for these traditional interstate pipelines," the report said.
Further evidence of the phenomenon are several announced flow reversal projects by affected pipelines. For instance, Columbia Gulf's West Side Expansion will essentially allow bidirectional flow from Leach, KY, to the Rayne compressor station in Louisiana. Transco's Atlantic Access project will provide for the flow of Marcellus gas to any point in the pipeline's mainline to Transco Zone 3 (i.e., Louisiana). And Texas Eastern's Renaissance Gas Transmission project will connect the Texas Eastern system in Tennessee to the Transco system in northern Georgia and allow movement of Marcellus and Utica gas into the eastern portion of the Southeast region.
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