As production from the booming Marcellus Shale has grown and the emerging Utica Shale has made its presence felt, the Northeast, formerly a gas "have-not," is pushing its own production outward to markets as pipelines race to catch up.
Despite how far Northeast gas production has come, there's more in store as the region matures, according to a new analysis by LCI Energy Insight and Energy Ventures Analysis (EVA) titled "Changing Regional Dynamics in the Northeast."
For one, other regions will increasingly feel the impact of Marcellus production. Gas from Eastern Canada will be less welcome in the Northeast U.S. market, and U.S. gas will be making its way across the border. Gas storage in the Northeast will become devalued as the region becomes more of a supply basin to other regions while several pipelines ponder flow reversals to accommodate the shift in production dynamics, the firms' analysis found.
"At present, the Marcellus Shale play is the fastest growing gas play in the U.S.," LCI and EVA said. "In 2012, it is projected to account for over 40% of expected increases in U.S. shale production and approximately one-third of the increases in shale production in 2013."
At about the time increased development of the Marcellus began in 2008, the industry was finishing up several pipeline projects that were conceived during the pre-Marcellus era. These included Millennium Pipeline, Transcontinental Gas Pipeline's (Transco) Sentinel Expansion, and most notably the Rockies Express Pipeline (REX).
LCI and EVA wrote that these projects will contribute to Marcellus takeaway capacity, although they weren't originally conceived to meet that need. Millennium and related projects "will have a significant impact on the Marcellus takeaway equation," they wrote. The Transco system will play a role, too, and some of the regional projects associated with REX will also help get Marcellus gas to market. Additionally, pipelines developed to serve the Cove Point and offshore Neptune liquefied natural gas (LNG) import terminals "likely will facilitate some Marcellus production," they said.
The analysts examined data on wells in the Marcellus and found that as of November there were 1,340 wells in the play that had been drilled but not completed. "...[T]he 1,304 uncompleted Marcellus wells represent about 20% of the wells completed for all of the shale plays in 2010," they wrote. "While the region's lack of completion services is a factor driving this phenomenon, the lack of adequate takeaway capacity also is a key driver."
"At times stranded gas supplies along this pipeline have sold for as little as 60 cents/MMBtu," the analysts said. "In addition, a large basis differential between the Tennessee 300 Line (Tenn Zone 4) and the Tennessee 200 Line (Tenn Zone 6), which traverses central New York, which is a distance of only 200 miles, has emerged." It could take until next year or 2014 before the situation is fully resolved, they said.
The takeaway constraints have not gone unnoticed by pipeliners. According to LCI and EVA, more than 70 projects have been proposed to address constraints in northern Pennsylvania, 14 of which would directly or indirectly affect flows long Tennessee's 300 Line, which tends to bottleneck as it approaches New York City.
In eastern Pennsylvania, Transco has responded to surging Marcellus production with a series of projects to provide more takeaway capacity and meet incremental demand within the region, according to the report. The Dominion system interconnects with nearly every system in the region, and several projects have been proposed to create additional takeaway capacity on this system, too.
In southern Pennsylvania Texas Eastern Transmission Co. (Tetco) has its Team 2012 and Team 2014 projects (see Shale Daily, Jan. 20). "Both projects involve enhancing sections of Tetco's southern most line traversing Pennsylvania through the use of both pipeline looping and additional compression," the analysts wrote. While the Team 2012 project seems to be a certainty, the Team 2014 project, which already has anchor tenants, is not yet fully defined."
Additionally, they said Tetco is a leader in developing capacity to serve production from the Utica Shale with its Ohio Pipeline Energy Network (Open) to provide 1 Bcf/d of capacity.
In eastern Pennsylvania the systems of National Fuel (see Shale Daily, Dec. 27, 2011) and Equitrans (see Shale Daily, Sept. 23, 2011) interconnect with most of the major transmission systems in the region, making them important to the takeaway capacity picture even though they are not viewed as major interstate systems themselves, the analysts said. Several projects have been proposed to increase capacity of these systems.
Once takeaways capacity infrastructure matures, the market can look forward to several developments, according to the report. One is a decrease in regional basis differentials. The Northeast also will be a gas-exporting region, at least during non-winter months. Regional gas buyers will increasingly turn away from traditional supply sources (e.g., Gulf Coast gas on long-haul pipelines) to regional supplies. And the value of storage in the region will decline as consumers are more able to rely on increased supplies to cover swings.
Further, exports out of the Marcellus region will increase.
In 2007 imports of gas from Canada and in the form of LNG, Gulf Coast gas carried on long-haul pipelines and Appalachian production accounted for 93% of the region's supply, according to the report. Regional production made up the remainder. Now, about one-third of regional supplies are derived from production within the region as of last year. As Marcellus gas supplies grow, the region will see further changes in its gas supply composition, the analysts wrote.
"The transition of the Northeast region from being a gas-importing region to being a supply center will have significant impacts on the gas flows and basis differentials for several other regions," the report said. "Probably the most obvious of these is the decline in Canadian imports to the region and the likelihood that the Northeast, in the near future, will begin exporting to Eastern Canada through Niagara [NY] and Chippawa [ON] [see Shale Daily, Nov. 22, 2011b; Sept. 12, 2011]."
Gas supplies traveling on REX have been pushed back westward (see Shale Daily, Jan. 26; Jan. 9). "This is an amazing transition for a major interstate system that only was completed in 2009," the analysts wrote. "While the bringing online of Ruby Pipeline in mid-2011 was a factor in this transition, the primary factor has been the surge [of] Marcellus production.
"In addition, tension already has started to develop between Northeast and Rockies basis differentials, with Northeast gas prices being below Rockies gas prices on a few occasions."
In time, gas from the Northeast will begin to flow to the Southeast, at least on a seasonal basis, the report said, especially if projects such as Transco's Atlantic Access (see Shale Daily, Feb. 7) are completed. "This phenomenon will have a significant impact on regional basis differentials, particularly as the null point for the Eastern gas flows shifts toward Transco Station 85 (i.e., Georgia).