Up to 40 Bcf/d of firm capacity contracts on pipelines is expected to expire by 2015, which would affect the “vast majority” of pipelines that transport natural gas to the Northeast, said an executive with Massachusetts-based Skipping Stone.
“We are coming up on a big renewal” deadline because most of the contracts for firm transport and storage services were negotiated in 1995-1996, when pipelines restructured from their merchant function to transportation-only, said Greg Lander, president of Skipping Stone, which operates Capacity Center.
“This is a very large amount of firm contract capacity to come up for renewal all at once,” he said. “You’ll see some path shortening.” This means less gas will be transported from the Gulf of Mexico to the Northeast, with more gas being sourced from basins, such as the Marcellus Shale, that are closer to demand markets, he said.
When shippers subscribed to the firm capacity it was for a term of 20 years, but this time around there will be “term shortening” to approximately three to five years, Lander said. And there will be “some price pressure because the basis has been crushed.” He sees prices falling 10-30% through 2016.
Pipelines that transport gas to the Northeast will be most affected by the capacity contract expirations: Tennessee Gas Pipeline, Transcontinental Gas Pipe Line, Texas Eastern Gas Transmission, Columbia Gas and Columbia Gulf.
“I think [the expired contracts] will pretty much be renewed to shorter terms, shorter paths,” Lander said.
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