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New Fayetteville Pipe Would Carry 2 Bcf/d, Cost $1.3B

Robust production from Arkansas' Fayetteville Shale, where some think 20-30 Tcf or more gas resides, has spawned an interstate pipeline project backed by Kinder Morgan Energy Partners LP (KMP) and Energy Transfer Partners LP.

Last Wednesday the companies said they struck a 50/50 joint venture, called Fayetteville Express Pipeline LLC (FEP), to develop an approximately 187-mile pipeline that would originate in Conway County, AR, continue eastward through White County, AR, and terminate at an interconnect with Trunkline Gas Co. in Quitman County, MS.

The FEP pipeline would have an initial capacity of 2 Bcf/d. With regulatory approvals the $1.3 billion project could be in service by late 2010 or early 2011. FEP has secured binding 10-year commitments for 1.575 million Dth/d, including 1.2 million Dth/d from Southwestern Energy Services, a subsidiary of Southwestern Energy Co., and 375,000 Dth/d with an option for an additional 125,000 Dth/d from Chesapeake Energy Marketing Inc., an affiliate of Chesapeake Energy Corp.

The pipeline would also interconnect with Natural Gas Pipeline Co. of America (NGPL) in White County, AR, Texas Gas Transmission in Coahoma County, MS, and ANR Pipeline Co. in Quitman County, MS. NGPL is operated and partially owned by Knight Inc. Knight owns the general partner of KMP.

"The FEP project will provide shippers in the Arkansas Fayetteville Shale with much-needed takeaway capacity, flexibility and access to markets," said Lee Hanse, senior vice president of Energy Transfer.

Infrastructure development is taking place in the Fayetteville in north central Arkansas in concert with growing production, just like what has been seen in the Barnett Shale of Texas. Last month Texas Gas Transmission filed an application seeking FERC authorization for a compression expansion of its Fayetteville and Greenville laterals, which are under construction. According to the Texas Gas website, the first 60 miles of the Fayetteville lateral is expected to be in service in the fourth quarter, and the rest of the Fayetteville and all of the Greenville are expected to be in service in the first quarter of 2009. The pipeline said production from the Fayetteville "is exceeding anticipated production schedules" (see NGI, Sept. 15).

An Energy Transfer spokesman told NGI that about 90% of FEP will run parallel to the Fayetteville lateral in existing right of way.

Chesapeake, Southwestern Energy Services and XTO Energy Inc. are the primary shippers supporting the Texas Gas lateral project. Chesapeake has signed up for 100,000 MMBtu/d of capacity. XTO has executed two transportation agreements, one with an initial maximum quantity of 50,000 MMBtu/d that ramps up to 300,000 MMBtu/d and another for 25,000 MMBtu/d.

Major Fayetteville player Southwestern reported record production of 45.1 Bcfe in 2Q2008, which was 74% higher than the year-ago period when the company produced 25.8 Bcfe. Southwestern production in the Fayetteville alone reached 29.6 Bcf, up from 10.7 Bcf in 2Q2007 and ahead of the 23.6 Bcf reported in the first three months of this year.

Gas shale success of companies such as Southwestern and Chesapeake has attracted the interest of major producers, as evidenced by a deal struck recently by Chesapeake and BP America. BP is taking a 25% interest in Chesapeake's Fayetteville assets in Arkansas for $1.9 billion, marking the third transaction in less than two months involving the sale of Chesapeake shale assets, two of which have been with BP (see NGI, Sept. 8).

The capacity in Fayetteville Express "will provide Chesapeake and our 25% partner, BP America, with improved access to more favorable natural gas markets at an attractive transportation rate," said Chesapeake CEO Aubrey McClendon. "This agreement helps to reduce both basis risk and pricing volatility and will accommodate the substantial growth we anticipate from the Fayetteville Shale play in the years ahead."

To gauge further shipper interest in FEP, the joint venture is conducting a binding open season beginning at 5 p.m. CDT on Oct. 8 and ending at 3 p.m. CDT on Nov. 7. Capacity of the project may be increased depending upon results. For information contact David Matney at (713) 369-9218, Laura Heckman at (713) 369-9436 or Luke Fletcher at (210) 403-6492. Open season information will be available at www.kindermorgan.com and www.energytransfer.com. As a new interstate pipeline, the project will be under the jurisdiction of the Federal Energy Regulatory Commission.

Kinder and Energy Transfer also are partners in the Midcontinent Express Pipeline project, which targets gas shale production in Texas, Oklahoma and Arkansas. The project is scheduled to come on-line in the first half of 2009 (see NGI, Aug. 4).

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