The 450-odd residents of the tiny eastern Ohio village of Clarington likely have no idea that, according to Bentek Energy LLC, a natural gas clot of well over 1 Bcf/d will be barreling their way in June 2009.
That's when the second of two legs of Rockies Express (REX) East is due to come on-line, following the scheduled December 2008 completion of the first leg of REX East, which will land gas in the western Ohio town of Lebanon. Whether the Ohioans like it or not, the third and final phase of REX gives their state's slogan -- "the heart of it all" -- an entirely new meaning in the gas industry. It is here that the intended system design, lacking the arteries necessary to move gas to the major markets of the East, could break down.
Denver-based Bentek last week released the fourth and final installment of its analysis of REX and the effect it will have on the industry. Previously, Bentek wrote on REX Phase II, which is to extend the pipeline from the Cheyenne Hub in Colorado to Mexico, MO, when it enters operation early next year. Bentek found that REX II could put pipelines transporting gas from the Anadarko and Permian basins at a distinct disadvantage (see NGI, April 16).
Now, writing on REX III (known as REX East at the Federal Energy Regulatory Commission), Bentek finds that while the pipeline clearly makes good on its promise to get gas out of the Rockies, it does little to get gas into the high-priced Northeast.
"While REX will deliver 1.8 Bcf into Ohio markets, constraints located east of Ohio will limit the volume of incremental supplies that can be delivered to the highest-priced markets," Bentek analysts wrote. "REX alone, as it is being constructed, will do little to alleviate the chronic tight supplies that plague the Northeast market. To get Rockies gas into this tight market, additional pipeline capacity to markets in the Mid-Atlantic, New York and New England areas must be built.
"There are three factors that may help mitigate a basis collapse at Lebanon/Clarington: Declining Canadian imports, new approaches to the use of regional storage and new pipeline construction."
Bentek noted constraints at three key interconnects.
In Lebanon, Vectren and Cincinnati Gas & Electric will be able to receive deliveries directly from REX, but unless they have a reduction from one or more of their traditional suppliers they must offset receipts from REX. Capacity constraints also exist on Columbia Gas Transmission and Dominion Transmission Inc., particularly during the heating season, Bentek said
In Clarington, Texas Eastern Transmission's (TETCO) Lebanon line is constrained. REX supplies seeking TETCO's mainline must first pass through the constrained Lebanon line, Bentek said. Also in Clarington, a similar constraint situation could keep REX volumes from accessing Tennessee Gas Pipeline (TGP), Bentek said.
"Given these constraints, the ability of REX to displace supplies from traditional supply sources hinges on delivered costs into the market area," Bentek said, noting that "REX has significant operating and cost advantages over its competitors" largely due to its ability to operate at higher pressures.
Some pipeline capacity that will ease constraints is being built. Additionally, Bentek said "Canada is the new Gulf [of Mexico]," meaning that while projects such as Independence Hub in the Gulf are helping to stem production declines there (see NGI, July 23), production cutbacks in Canada and increasing native demand are crimping exports to the U.S. "By the time REX reaches Clarington, [Canadian] imports may be down by more than 1 Bcf from 2006 levels," Bentek said. This could create a "hole" in Northeast supply that REX and other projects could help fill.
Some of the easternmost REX supply indeed will be absorbed by new pipe projects.
For instance, the Texas Eastern (Transmission) Incremental Market Expansion II Project (TIME II) will create capacity for an incremental 150 MMcf/d to reach the New Jersey market with new facilities in Ohio and Pennsylvania (see NGI, June 18). TGP's Northeast ConneXion NY/NJ Expansion, which entered service in December (see NGI, Dec. 11, 2006), also will help out. The two 30-inch diameter pipeline loops, additional compression and storage deliverability upgrades will help meet growing demand in the New York and New Jersey areas.
"Other REX supplies may move into Millennium [Pipeline (see NGI, June 25)], where shippers may see significant benefits from REX," Bentek wrote. "[I]t appears increasingly likely that Millennium will receive significant incremental supplies from TCO [Columbia Gas Transmission], Tennessee [Gas] Pipeline or one of the regional storage facilities. These pipeline and storage connections will enable incremental volumes to flow to NYC [New York City] markets, suggesting that Millennium may see much of its throughput from U.S. sources rather than from Canada."
Shippers on Millennium could find that a pipeline designed to bring more Canadian gas to the Northeast could be a "major beneficiary of REX," Bentek said.
The analysis and consulting firm also noted that El Paso Corp.'s Tennessee has proposed the 1.1 Bcf/d Northeast Passage project, which would run 471 miles from Clarington to Pleasant Valley, NY, with interconnections to other pipes along the way. "This system has the potential to significantly increase takeaway capacity from Clarington and would provide direct access to markets in major metropolitan areas along the East Coast," Bentek said. However, Northeast Passage isn't expected to be in service until November 2011, a full two years after REX is completed.
And when pipeline capacity/market advantages don't exist to move REX volumes eastward, there is always storage. "In total, as much as 166 Bcf of additional working storage gas capacity is planned in the Eastern consuming region that could provide significant space to store gas arriving via REX," Bentek said. "The utility of these storage facilities will depend on whether gas can be injected into them without displacing existing supplies and whether gas can be taken out of them via a pipeline with capacity to deliver to the market on a peak day."
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