In the summer of 2011, expanding natural gas pipeline export capacity could collide with rising production from the Rocky Mountains, according to a study by Societe Generale energy analysts.

“The full-force bearishness of expanding export capacities and rising production in the Rockies should come to a head this summer,” said analysts Laurent Key and Stephanie Aymes in their report “A Quagmire of Solutions for Rockies Gas.”

The Rockies study follows the investment bank’s review of new pipeline capacity in the Southeast, which was published earlier this month (see Daily GPI, Dec. 10).

According to the analysts, Rockies gas pipeline developments ramping up in the coming year should flatten basis prices mitigated by rising production in Colorado’s Niobrara Shale and the Uinta Basin in Utah.

“This forecasted West basis picture is similar to what is expected in the Southeast for 2011, only with one important difference: the rush toward shale oil drilling will put even more downward pressure on Rockies than on the Southeast,” said the duo.

Two big gas pipelines are muscling into the Rockies over the coming year: in January TransCanada Corp.’s Bison Pipeline starts service, and in June El Paso Corp.’s Ruby Pipeline is scheduled to ramp up (see Daily GPI, Dec. 8; Nov. 5). Bison is carrying gas to Midwest markets, while Ruby is heading to the West Coast.

Meanwhile, Questar Overthrust Pipeline’s mainline expansion in Wyoming comes online in September (see Daily GPI, July 7).

“As in the Southeast, investment in outbound Rockies capacity results from the need for producers to diversify export routes when output is expected to rise,” noted the Societe Generale team. “The sum of all existing and under construction outbound capacities exceeds current forecasts for 2011 production, easing the risk of a 2007 congestion-linked price depression toward null and negative values.

“The trouble is, the desired flexibility among these various export solutions is likely to result in even more intense gas-on-gas competition in the Rockies during the expected 2011 oversupply.”

As the Rockies Express Pipeline competes with Marcellus Shale gas, increasing production in the eastern Rockies has to find a way to Ruby in the West, said analysts.

“Increases in north Colorado gas production should result from the new drilling frenzy on the Niobrara Shale play. The shale’s sweet spots for oil drilling are located in northern Colorado, far from the entry point of the Bison Pipeline, which leaves only the West for new supply diversification at the Cheyenne Hub. On top of that, rising production on the Wyoming part of the Niobrara Shale play is likely to edge out Cheyenne Hub gas to Ventura and the northern Midwest markets.”

Gas from the eastern Rockies also may face competition from increased gas supplies that will come from oil drilling in Utah’s Uinta Basin.

“Since the expansion of the Southwest-bound Kern River pipeline has been put on hold, the only new outlet left for rising Utah production will be along the middle leg of the Questar and the southern part of the Northwest pipeline; these two legs carry Utah and southern Colorado gas to the Overthrust pipeline,” analysts noted.

The 10 Bcf expansion that has been approved for Questar’s Clay Basin “should help relieve — though only for so long — the expected glut at the intersection of the Questar system with the Overthrust and Northwest pipelines (in south central Wyoming). The question is whether the glut will spread low prices toward the Pacific Coast when Ruby comes online.”

Ruby, said the Societe Generale analysts, is key to relieving upward price pressure at the Malin Hub near the Oregon-California border during the winter and should offset the “bearishness” east of the Opal Hub in the 2011-2012 withdrawal season.

“Summer 2011 should be when rising production and expanding export capacity spur full-on bearishness over the entire western region: With no new systemic demand, the PG&E system is likely to issue as many Operational Flow Orders as last summer.”

Over the next injection season, “gas rejection” and a lack of storage capacity likely will dampen Malin prices.

“As Opal starts to feel the double-whammy of Pacific Coast and Central Rockies bearishness, regional producers will have to shut down the least economic wells. With such a bearish price forecast in the West, no wonder PG&E has started subsidizing electric car consumption in California” (see Power Market Today, Dec. 14).

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