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New Export, Power Generation Markets Targeted By Major Pipeline Operators

With the wave of new shale gas supplies flooding the U.S. market and pushing prices to nearly 10-year lows, the natural gas industry is actively searching out new markets and customers to increase demand, panelists told an audience at the Pennsylvania Independent Oil & Gas Association's Winter Meeting in Champion, PA, on Tuesday.

Representatives from pipeline heavyweights Dominion Transmission, Spectra Transmission and National Fuel Gas Transmission, said they are continually reaching out to potential new customers inside and outside of the United States.

Daniel Fowler, who is director of Business & Facility Planning for Dominion Transmission and Dominion Cove Point LLC, said his company continues to move forward with its plans for liquefied natural gas (LNG) exports from Cove Point in Lusby, MD, which is situated on the Chesapeake Bay (see Shale Daily, Jan. 31). The company asked the U.S. Department of Energy (DOE) for approval to export up to 365 Bcfe/year for 25 years to non-free trade agreement countries.

"We still have [the facility] available for our customers to import LNG, but we're also looking at building a very large liquefaction facility at that plant to export," said Fowler. Adding liquefaction and export capabilities at Cove Point "could create a very large market for producers in the Northeast. Currently, we're looking at a start-up potentially in late 2016, early 2017. It is a very large investment. There are some other companies in the Gulf that are looking at this as well, but we think this is a good opportunity for producers in the Northeast to find an efficient market for exporting."

Fowler noted that with Cove Point exports, Dominion would act simply as the service provider. "We will liquefy the gas and load it on the ships, but we don't plan on taking title of the gas. We will be in essence a tolling facility just for the services at the plant." Dominion is currently setting up the inhouse resources necessary for producers that are interested in providing supplies. "Once things become more definitive, we will be actively trying to help facilitate the contact between those that are buying the liquefaction service at the plant and the producers who will be selling their gas supply."

The major driver is the economics, Fowler noted. On Jan. 23, front-month natural gas futures on the New York Mercantile Exchange reached a low of $2.231/Mcf. The last time a front-month contract traded lower was nearly 10 years ago on Feb. 15, 2002 when the March 2002 contract reached a low of $2.147.

"If you look at the disparity between the U.S. gas market and the European and Asian markets, the U.S. market is $2.50-3, while in Europe it is probably around $12-14 and in Asia it could be $16-20," Fowler said. "When you look at that disparity, the 'movable pipelines' that go across the Atlantic in these tankers" make sense.

This appears to be true especially as a mild winter and surging shale gas supplies have teamed to create an ever-growing U.S. storage surplus. As of Jan. 27, working gas in storage stood at 2,966 Bcf, according to Energy Information Administration estimates. Despite the week's draw of 132 Bcf, stocks grew to 586 Bcf higher than last year at this time and 601 Bcf above the five-year average of 2,365 Bcf.

National Fuel Gas Transmission is also actively looking to use its infrastructure to export gas, according to Greg Maliken, facility planning engineer in Interstate Marketing for the company. However, National Fuel's focus is on Canada. "National Fuel and Empire are our two pipelines that connect to Canada, one at Niagara and one at Chippewa," he said. "Both of those projects for years have imported gas from Canada. Just when Canadian supplies are starting to dwindle, the Marcellus came along. We're quite fortunate we're in a position to turn those pipelines around. By the end of the year we'll have close to 1 Bcf/d turned around and going the other way."

Like National Fuel, Spectra Transmission is also looking to export gas to Canada. Spectra's Union Gas, a local distribution company, serves 1.2 million residential customers in Ontario; it also owns the large Dawn storage field in the province.

"We are looking to the north as well," said Robert Riga, general manager of Northeast Business development for Spectra Energy Transmission. Supplies from Western Canada are going to continue to dwindle and storage is drying up, he told the audience. "We have a project that is in the very early stages of development to try to tie supply from Pennsylvania and Ohio...into the Union Gas system either on the eastern end near Niagara or on the western end at the Dawn Storage Field."

Another market the pipelines are attempting to further tap is the power generation sector as older coal plants are retired, mostly to be replaced with gas-fired units. "We believe that power generation is going to be a very important market for natural gas, natural gas producers and certainly pipelines," Riga said. "Over the last couple of years we've been very good at developing and attaching growing supply to our system. I think it is going to be just as important for us in the pipeline business to try to help grow the demand that attaches to our pipelines as well."

Spectra is actively talking to all of the power companies that are near its pipeline system to determine their plans plans and offer gas as a solution, an effort that Fowler said, Dominion does as well.

"We've identified all of the power gen near our system who could become potential customers," Fowler said. "We're trying to reach out to as many customers as possible."

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