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Spectra Announces Marcellus Projects as Delay Threatens Another

In Appalachia, gas from the Marcellus Shale is pushing out in all directions. Producer demand for takeaway capacity is great, prompting Spectra to announce this week its Northeast Expansion Transmission (NEXT) project to serve markets in Eastern Canada and its Algonquin Incremental Market (AIM) project to meet New England demand with gas from Pennsylvania.

AIM would expand Spectra's Algonquin Gas Transmission system, carrying gas from the Texas Eastern Transmission and Maritimes & Northeast pipelines. The NEXT project would carry Utica and Marcellus shale gas to the Dawn Hub in Ontario.

These projects, slated to enter service between 2015 and 2017, join the previously announced Texas Eastern Appalachia to Market (TEAM) 2014 project and the Ohio Pipeline Energy Network (OPEN). Combined, the four initiatives represent $2-4 billion worth of development slated for 2014-2017.

Spectra also announced that two unnamed anchor shippers had signed binding agreements for capacity on the Team 2014 expansion, which is expected to enter service during the fourth quarter of 2014 (see Shale Daily, Jan. 18).

Late last year Spectra's Texas Eastern announced OPEN with project shippers American Electric Power and Chesapeake Energy Marketing Inc. OPEN is an expansion of the Texas Eastern system to connect Marcellus and Utica shale gas supplies in Ohio to existing markets (see Shale Daily, Dec. 22, 2011).

But the most significant project the company has is further along: the New Jersey-New York expansion project of Texas Eastern Transmission LP and Algonquin Gas Transmission LLC, Bill Yardley, Spectra group vice president for northeast transmission, told financial analysts this week.

The project is slated for New Jersey and New York, about 16 miles of new pipeline and five miles of replacement pipeline adding capacity of about 800 MMcf/d with completion by November 2013, according to Spectra's website.

"Our New Jersey-New York [NJ-NY] Expansion continues to be the highest profile project that we have in execution at this time," he said. "This is the most important piece of new natural gas infrastructure in execution in North America today. Northern New Jersey and Manhattan are downstream of a bottleneck that causes prices here to periodically reach four to five times that of the rest of the country.

"In addition to relieving this constraint, this strategic expansion considerably augments are already enviable market position by giving us a deeper penetration into New Jersey and, of course, a new interconnection here in Manhattan."

While documents presented at the New York City investor conference said the NJ-NY Expansion is on track for in-service during the second half of 2013, the project is facing delays at the Federal Energy Regulatory Commission that could threaten its timeline and make the project uneconomic, according to Commission filings.

According to the project backers, "...any further delay in [the project's] schedule will foreclose any reasonable possibility of a 2013 in-service date, may have a serious adverse impact on the construction costs, and could render the project uneconomic."

Consolidated Edison Co. of New York (Con Edison) has signed up for capacity on the project and told FERC earlier this month that projected delays to issue the project's environmental impact statement due to project revisions "...will cause the construction schedule to be extended and postpone the in-service date past November 2013. This will...require Con Edison to secure alternate capacity for the 2013-2014 winter season and delay until the following winter the important reliability enhancements that the project will being to New York City consumers.

"At the worst, it could cause the applicants to abandon the project as uneconomic and deny Con Edison's customers the economic, environmental and reliability benefits of the project entirely."

Whenever the NJ-NY Expansion and Spectra's other Northeast projects are completed, they will have demand to serve, Yardley said. Residential conversions to natural gas use in the Northeast are increasing, he said. More significantly, gas is the fuel of choice to expand and replace aging oil- and coal-fired power generation infrastructure. In the Northeast there are about 46 coal-fired generating units within 30 miles of Spectra pipelines, representing a 10 Bcf/d demand opportunity as these plants are replaced with gas-fired units.

System expansion opportunities in the region, however, are largely producer-driven, Yardley said, with producers requiring access to a variety of markets, including Midwest power generators, the premium Northeast and New England markets, as well as southeastern Canada.

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