Norwegian oil and gas giant Statoil ASA last week increased its stake in emerging U.S. shale gas development by inking transportation agreements to carry its Marcellus Shale production from Pennsylvania to markets in New Jersey and New York.
Statoil's U.S. subsidiary Statoil Natural Gas (SNG) completed transportation agreements with El Paso Corp.'s Tennessee Gas Pipeline and Spectra Energy Corp.'s Texas Eastern Transmission that will allow it to transport up to 200 MMcf/d directly from the northern Marcellus production area to New York City and the surrounding areas. Financial terms of the transaction were not disclosed.
"This is an important breakthrough for Statoil's gas marketing position in the U.S.," said Rune Bjornson, Statoil's executive vice president for Natural Gas. "These agreements secure access to some of the main pipeline systems for gas in the New York City area and thereby help maximize the value of our gas produced in the Marcellus Shale. We expect that this will create attractive sales opportunities in New York City, New Jersey and surrounding areas in what is regarded the most attractive gas market in the U.S."
Statoil gained its stake in the Marcellus Shale play when it acquired a 32.5% interest in Chesapeake Energy's acreage in the area in November 2008 in a $3.38 billion deal (see NGI, Nov. 17, 2008). Approximately $1.25 billion was paid for the stake with $2.13 billion set aside to fund 75% of drilling and completion costs from 2009 to 2012.
Statoil on Tuesday reiterated its target that equity production from the Marcellus Shale gas play will increase to at least 50,000 boe/d in 2012 and at least 200,000 boe/d after 2020.
The company said the transportation capacity contracts are expected to commence in November 2013 after project permitting and construction has been completed on the pipeline expansions. The total capacity of Tennessee Gas Pipeline's Northeast Upgrade Project, which will link Tennessee's 300 Line in Pennsylvania to an interconnect in New Jersey, is approximately 620 MMcf/d. Tennessee is targeting a Nov. 1, 2013 in-service date.
The capacity of Texas Eastern's New York area project, which will transport Marcellus gas to New Jersey and New York, is approximately 800 MMcf/d (see NGI, Jan. 4). It is expected to be in service in the fourth quarter of 2013.
Chesapeake Energy, through its subsidiary Chesapeake Energy Marketing (CEM), has reserved 419 MMcf/d and Statoil has 200 MMcf/d in the case of the Tennessee project. CEM has 430 MMcf/d, Statoil has 200 MMcf/d and Consolidated Edison has 170 MMcf/d reserved in the case of the Texas Eastern project.
"The Manhattan area of New York City is in our view a particularly interesting market with strong underlying gas demand growth due to its large and growing population, commercial growth and the environmental benefits due to increased fuel switching from heavy oil," said Hilde Nafstad, who is heading up SNG.
Statoil, which has been one of the leading players in the deepwater Gulf of Mexico, has been looking to expand its U.S. gas portfolio in recent years (see NGI, March 10, 2008; Sept. 11, 2006).
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