Falcon Gas Storage Co. Inc.'s Worsham-Steed Pipeline was expected to begin flowing gas last weekend or some time this week. As such, its in-service date will be about a month behind schedule but still in plenty of time to tap prolific Barnett Shale production and serve customers of the Worsham-Steed Gas Storage Facility in the western portion of the Barnett.
"I've been told by our guys that we expect to be flowing gas this weekend," Falcon CEO John Hopper told NGI last Tuesday.
Worsham-Steed Pipeline runs southward from the Worsham-Steed storage facility through Jack, Parker and Hood counties where it interconnects with the two existing major 36-inch diameter gas transmission pipelines that serve North Texas -- the North Texas Pipeline, jointly owned by Enterprise Products Partners and Energy Transfer Partners; and the Atmos Energy Line "X" Pipeline. In addition to an existing interconnection with Energy Transfer's Old Ocean pipeline at Worsham-Steed, the new pipeline also will potentially connect with Devon Energy's Acacia pipeline, Atmos' Line "WA" and Enterprise's Sherman Extension Pipeline (see NGI, Nov. 13), which will move gas from the Barnett Shale northeast to Boardwalk Pipeline Partners' proposed Gulf Crossing Pipeline.
While Barnett producers will benefit from the Worsham-Steed capacity, there's still plenty to be done on the infrastructure front to tap Barnett gas and eventually gas from the region's other promising shale plays, the Fayetteville and Woodford.
"There still isn't enough takeaway capacity within the Barnett Shale area and then out of the Barnett Shale area," Hopper said. "By that I mean in the areas where drilling and production are taking place, there's a lack of sufficient pipeline capacity to get it out of that area. We're building the Worsham-Steed partially to serve that and our storage customers as well."
While Hopper said he sees more room for pipeline development in the region, he speculated that more isn't happening because the majority of companies on the ground there are master limited partnerships (MLP), whose priority is growing cash flow distributable to unitholders.
"So if they're going to build a project, they need to have it fully underwritten by committed shippers with investment-grade credit so they can basically go borrow the money or at least have the assurance that they're going to have the cash flow to support that investment," Hopper said. "Until you have that kind of commitment you're just not going to see those pipes get built, No.1, and No. 2, there's kind of a first-mover advantage in terms of getting people signed up and just getting pipe in the ground."
This spring Energy Transfer Partners LP completed the final phase of its 42-inch diameter pipeline project to connect its 36-inch North Texas Pipeline, its Barnett Shale pipeline system and its Bethel Storage Facility to the Carthage Hub and other intrastate and interstate pipelines.
There also is Midcontinent Express, a joint venture of Kinder Morgan Energy Partners LP and Energy Transfer (see NGI, Dec. 18, 2006). The approximately 500-mile pipeline will originate near Bennington, OK, travel through Perryville, LA, and its pipeline hub, and terminate at an interconnect with Transco in Butler, AL. The $1.25 billion project will have an initial capacity of 1.4 Bcf/d and will tap some Barnett Shale production through Energy Transfer's pipe.
And Boardwalk Pipeline Partners last year announced plans to build a new pipeline -- Gulf Crossing -- from North Texas near Sherman to the Perryville LA, area. The 355-mile, 42-inch diameter pipeline will have a design capacity of 1.5 Bcf/d (see NGI, July 2, 2007).
Looking at the continent's premier shale plays -- the Barnett, Fayetteville and Woodford, in that order -- Hopper said economics clearly favor the Barnett, at least for now. While producers such as Chesapeake and Southwestern Energy are taking lessons from the Barnett and driving costs down in the Fayetteville (see NGI, July 3, 2006), gas prices are softening and the Nymex strip is in retreat (see related story).
"The question is, what's your view of gas prices and are they sufficiently high to give drillers in the Fayetteville and next in the Woodford a sufficient rate of return to continue to develop those plays in a sufficient magnitude to support building those pipes out of there." Hopper said. "I don't think the Barnett Shale alone can support [it], certainly not two pipes coming out..."
In the coming days producers will at least be able to move gas on Hopper's Worsham-Steed Pipeline, which, not surprisingly, he thinks is a better deal than what the proposed eastbound projects offer.
"We're going south, taking our gas from north and west to south to pipes that are already there," he said. "We think at least right now that that's a better play to get gas moving immediately. If you look at the pricing netbacks, the NGPL Midcontinent pricing point, which is what you'd get if you connected to the Kinder Morgan and the Boardwalk pipes, it's not a compelling story for a producer to get that price unless you take it all the way to the East Coast pipes...And then you've got to netback your price of transport to basically northeast Texas and decide whether you're ahead of the game or not. I think those economics are borderline right now. The prices move around a lot so it's hard to say..."
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