Growing wellhead deliverability and flat-to-intermittent regional natural gas export capacity continue to bedevil Rocky Mountain producers, but it remains to be seen whether the Rockies Express (REX) Pipeline will turn out to be the “basis savior” some expect, an energy consultant said last week.
Reports of 1 cent/MMBtu spot transactions during periods of scheduled and unscheduled pipe outages “are giving gas producers some pause in their aggressive development of Rockies production capacity,” said Pace Global Energy Services. Several producers “are admitting to voluntary production curtailments in light of the high probable continuation of the pipeline capacity bottleneck at least through next year and into 2009” (see NGI, Sept. 24). Questar Corp. last week said it shut in about 4.4 Bcfe (net) of unhedged Rockies production in 3Q2007 (see related story).
The Washington, DC-based consultant recalled the “last major Rockies basis savior,” the 2003 Kern River pipeline expansion, which had “immediate positive effects on Opal netbacks.” However, the expansion added 900 MMcf/d of capacity into a large and liquid California market, “where ample (if uneven) takeaway capacity existed to move the product to eager consumers.”
Double Kern River’s capacity into Clarington, OH, “may be another story,” said Pace. A closer analogy, it said, may be the Alliance Pipeline, which “tanked the over-piped Chicago market when it came on-stream in 1999 while simultaneously elevating Alberta netbacks.”
The Clarington market “is a little smaller than the Chicago market, so it remains to be seen how price equilibration will allocate benefits between producers and consumers. Several Northeast and Mid-Atlantic pipeline operators have noted the potential for a Clarington ‘gas sewer’ and have only recently announced projects to provide takeaway capacity to their respective core markets and beyond” (see NGI, Oct. 8; Oct. 1; Sept. 17).
One potential project by National Fuel “is shopping a new line to the extensive storage fields and pipeline infrastructure in western Pennsylvania.” National Fuel “is unconflicted in promoting this growth initiative, but the sponsors of competing projects must be more ambivalent.” It noted Transcontinental Gas Pipe Line Corp., or Transco, and Texas Eastern “are both floating proposals to build new pipelines from Clarington into their existing mainline systems in southeastern Pennsylvania.”
However, Pace said it was “hard to be sanguine that any of these proposals will convert to steel in the ground in a timely manner.” Potential pipe sponsors have to recall Columbia’s “decade-long ordeal attempting to acquire the right-of-way and permits for the relatively minor segments of the Millennium pipeline corridor not already under lease when forecasting Opal — and Clarington, OH — netbacks over the next few years.”
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