The regional natural gas pipeline gluts forecast for the Southeast and the Rockies in 2011 won't spare the Marcellus Shale, where a lack of capacity to carry gas to New York City (NYC) along the eastern Pennsylvania border remains unresolved, said Societe Generale energy analysts.
Analysts Laurent Key and Stephanie Aymes examined the Marcellus Shale in the final part of their three-week series, which previously reviewed pipeline capacity issues on the horizon in the Rockies and the Southeast (see Daily GPI, Dec. 17; Dec. 10).
No new natural gas pipeline has reached the NYC market directly since Millennium Pipeline Co. LLC in 2008, and its Marcellus-to-Manhattan link won't be completed until November 2013, the analysts noted (see Daily GPI, Jan. 25; Dec. 23, 2008). In the past other pipelines have been proposed for those last few miles into the heart of the megapolis, but have been slowed or blocked by public opposition. The area that needs the gas the most, necessarily is heavily populated, which makes it difficult to forge new pipeline routes.
"Soaring prices at Transco Zone 6 [in mid-December] illustrates the problem. The seasonality of the Zone 6 curve exploded not only for this winter but also for the next two winters."
The marketplace "has pretty much realized that pipeline infrastructure needs to be here for Appalachian gas to reach NYC and shave off basis spikes during periods of harsh weather," said the duo. "The fact is, temperatures only needed to be 15% colder than last year in the Northeast to spur a jump in demand strong enough to create congestion."
Three major 2011 pipeline expansions are on their way to the Northeast that would deal with increased capacity from the eastern legs of long-haul pipelines that include the Rockies Express Pipeline, but they won't extend to NYC, said the analysts.
"True constructions (not expansion) for the next two years will be smaller laterals, designed to increase Marcellus gas flows to the Tennessee [Gas Pipeline Co.] and Texas Eastern pipelines."
Because no new gas storage capacity is expected to come online in 2011, the extra gas flows toward the East "will emphasize the strength of the eastern Pennsylvania barrier," they said.
"The trend is also toward supply diversification for northern West Virginia production."
Dominion's Appalachian Gateway Project is scheduled to start service in November, carrying shale and traditional gas production from West Virginia and southwestern Pennsylvania to storage fields and pipelines in Pennsylvania (see Daily GPI, Sept. 29, 2009). EQT Corp. also has a multi-year expansion of its interstate pipeline and gathering systems in the Marcellus Shale, which the analysts said is called the Sunrise project and is scheduled to ramp up in January 2012 (see Daily GPI, Sept. 22, 2009).
In early November, the analysts said, the first phase of the Texas Eastern Market Area Crossing, known as TEMAX, and Dominion's Hub III Project began service, adding 0.34 Bcf/d of capacity between Dominion South Point and Texas Eastern (Tetco) M-3 (see Daily GPI, Oct. 28; Nov. 23, 2009).
"The lack of pipeline development past the Pennsylvania/New Jersey border for 2011 is likely to result in a prolonged wider Tetco M-3/Transco Zone 6 spread for 2011; though this time it will result more from bearish pressure on M-3 than from upward pressure on Z6," they said.
Marcellus producers face "congestion risk" in the East and depressed prices in the West -- and the next move could be to diversify toward the Ontario market, which is being considered by several companies (see Daily GPI, Sept. 13).
Last summer, said the Societe Generale analysts, the Ontario market "enjoyed a steady 20-cent premium over the Midwest and northeastern basis, amid rising natural gas demand and high pipeline tolls on the TransCanada mainline."
TransCanada is working on a plan to reverse the upward trend in its long-distance tolls on its gas mainline; new capacity additions for its pipeline and others are planned from the Marcellus Shale (see Daily GPI, Nov. 15). Two pipeline expansion projects to carry Marcellus gas to markets in Canada and the Northeast are under way by National Fuel Gas Supply Corp. and Empire Pipeline Inc., which comprise the pipeline and storage segment of National Fuel Gas Co.
But real relief may have to await construction of Spectra Energy's plan, recently filed at the Federal Energy Regulatory Commission, to expand its Texas Eastern Transmission and Algonquin Gas Transmission interstate pipeline systems to serve the New Jersey and New York natural gas markets. The project to carry as much as 800 MMcf/d would include construction of approximately 15.5 miles of new pipeline through parts of Bayonne, Jersey City and offshore Hoboken in New Jersey, as well as parts of Staten Island and Manhattan in New York. Target in-service date is November 2013, but it already is running into local opposition (see Daily GPI, Dec. 22).
The three regional gas pipeline capacity analyses led Key and Aymes to conclude that Rockies, the Southeast and the Northeast "are so connected -- and will be even more so next year -- that each regional glut is likely to spread by domino effect.
"The question of timing is harder to solve. Given the current rush toward the Southeast and the number of wells drilled but not completed down there, this region might be the first to experience heavy bearishness. Then rising Marcellus production and high capacity of long-haul pipelines will carry the glut to the Northeast."
Unlike 2007, the Rockies may be the last place to be hit, "as Midwest prices will have to collapse first before spurring more Rockies flows toward the West Coast -- which doesn't need them."
From the "flat, bearish picture," the analysts said three regions may remain untouched: Sumas in the Pacific Northwest, Zone 6-New York and Florida premium markets. "These border markets are likely to remain disconnected from the rest of the U.S. picture until price dislocations spur the appetite for bridging the remaining gaps."
©Copyright 2010 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.