Even as the list of proposed pipeline projects, expansions and reversals to deliver Appalachian gas and liquids to high-demand markets in the Southeast, Canada and Gulf Coast grows, the midstream industry remains focused on the region's "backyard" in the Northeast.
Production in the Marcellus and Utica shales has soared since 2010, accounting for more than 20% of all natural gas produced in the United States. last year, according to the Energy Information Administration. Yet markets in the Mid-Atlantic and New England, within just a few hundred miles of those plays, remain underserved, with more infrastructure sorely needed for the gas-starved power plants and would-be utility customers so close, but still so far away.
"There's not an area in the world that's as vulnerable as the three- or four-hour radius around the Marcellus," said Ryan Savage, vice president of Northeast gathering and processing for Williams Partners LP. Last winter's sharp price spikes, Savage said, demonstrated "very clearly, that we have a problem here.
"The problem isn't a supply problem; we've had people talk about supply; it's an infrastructure problem, and that's not good news for us as an industry."
Savage was addressing a crowd at Hart Energy's Marcellus-Utica Midstream Conference last week. Last year’s event focused heavily on new markets for the glut of gas that has flooded Ohio, West Virginia and Pennsylvania over the last four year. At this year's event, midstream executives talked about the Northeast at length and acknowledged mounting policy challenges, grassroots opposition and the pressing task of getting more natural gas to heavily populated areas in the region.
"While it's more challenging to develop new pipelines in densely populated areas, it's not impossible," said Richard Hoffman, executive director of the Interstate Natural Gas Association of America (INGAA). "There's still a tremendous need."
Citing a report released by INGAA early last year, Hoffman said that between now and 2035, $641 billion worth of infrastructure is planned to meet rising crude oil and natural gas volumes in North America (see Daily GPI, March 6, 2014). If those projections hold up, most of the spending would occur in the Northeast and Southwest, where $67 billion and $82 billion are expected to be spent, respectively. Even in a low-growth scenario, if electricity demand declines and low commodity prices cut into capital spending, Hoffman said those two areas would still account for the largest share of spending at about $48-49 billion each.
"The electric power industry is the largest growth market for natural gas," Hoffman said. "But other issues surround capacity in places like New England, where the regulatory system in the states doesn't have rules in place that allow a utility to capture the cost of building pipeline capacity. That's one of the reasons why New England has some problems.
"Without the ability to recover costs, shippers won't sign up for capacity and the pipeline won't get built," Hoffman said. "Last year in Virginia, the state passed a law that gave utilities some certainty that they could recover costs for adding pipeline capacity to get natural gas into their system. So state legislatures have a very positive role that they can take."
Late last year, regional grid operator ISO-New England said in its draft system plan that more natural gas transportation capacity is desperately needed for the area (see Daily GPI, Sept. 9, 2014). The draft plan followed one of the coldest winters on record, which sent gas prices soaring and left power generators scrambling for gas (see Daily GPI, May 14, 2014).
Hoffman said federal and state lawmakers in the region need to learn more about the importance of natural gas infrastructure and help get more gas to the Northeast.
"There are a lot of new congressman whose only experience with pipelines has been Keystone XL, which is not so far the greatest success story as you well know," he said. "It's got so much bad press, and it's the only knowledge they have. They need to be educated about the benefits of pipelines. It's something people in your companies, when meeting with local or national representatives, can educate them on -- that the pipelines exist, they're safe and serve an important function."
Sunil Sabal, a midstream analyst at Global Hunter Securities, said 20 Bcf/d of takeaway capacity from the Marcellus and Utica shales is slated to come online in the next three years alone, with a sizable chunk dedicated to New England. Another 10-12 Bcf/d is being discussed for the region, but he said it's likely that as pipeline supply begins to outstrip production, some of those projects could be rationalized and tabled.
"What you're seeing on the midstream side of things is that the industry has started to respond pretty strongly to this disconnect in prices that the producer is getting at his wellhead versus what the end-consumer is paying and they're really laying out big systems to get this gas better connected to different markets," he said.
Hoffman added, however, that when it comes to New England in particular, grassroots opposition to pipeline projects could be one of the biggest impediments to development (see Daily GPI, Jan. 23). Just as exploration and production companies have been on the defensive across the country in recent years, he said midstream companies are now finding themselves in a similar position that will require more action going forward.
He said local activists are getting more serious and more organized, and he urged conference attendees to take the threat seriously.
"You have to take time to tell your story up front, if you have to react to stories about you, you're already playing catch-up."