NGI The Weekly Gas Market Report
Northeast Pennsylvania Marcellus Shale producers got some relief last Tuesday from sagging prices when El Paso Corp.’s Tennessee Gas Pipeline Co. placed its long-awaited 300 Line forward-haul expansion in service, increasing capacity on the Tennessee Gas Pipeline (TGP) system by 350 MMcf/d, a nearly 50% boost.
Although some doubt lingers about the new-found bullishness of Marcellus prices into Tennessee’s Line 300 in Zone 4, IntercontinentalExchange (ICE) indicated last Tuesday that at least initially higher price quotes were holding up, reporting a $3.37-55 range and $3.45 average (down about 3 cents) for TGP-Z4 Marcellus, which is similar to NGI‘s Shale Daily’s new “NE PA: Tenn” index that tracks east of Station 313 in Potter County, PA, up to and including Station 321 in Susquehanna County, PA.
Like ICE’s point, NE PA: Tenn on Tuesday produced the same $3.37-55 range and the same average of $3.45, but instead of a 3-cent drop on the day, it was actually 3 cents higher than Monday’s average.
The prices were looking a lot different from those recorded before the expansion went into service. From Sept. 30 through Oct. 3 on Tennessee’s Line 300 in Zone 4, gas had traded in much wider — and lower — ranges; on the Oct. 24 trade date going as low as 60 cents/MMBtu and as high as $3.73 with an average of 89 cents. The low end of NGI‘s Tennessee Zone 4 Line 300 index had fallen below $1 every day from the Oct. 19 to the end of the month, while the unconstrained Line 200 in Zone 4 had averaged $3.69/MMBtu and gotten as high as $3.89 and as low as $3.49, according to NGI’s Daily Gas Price Index.
The 300 Line expansion provides access to supplies from Gulf Coast, Appalachian, Rockies and Marcellus Shale supply areas, and gas deliveries to points along the 300 Line path and into various interconnections with other pipelines in northern New Jersey, as well as an existing delivery point in White Plains, NY, El Paso said.
“The TGP system is a key conduit for Marcellus Shale gas and other diverse supplies into Northeast and New England markets,” said Norman G. Holmes, president of TGP and Southern Natural Gas Co. LLC. “TGP is investing about $1.3 billion in four new Northeast projects that will increase capacity on the TGP system by an additional 1.5 Bcf/d, primarily from the Marcellus Shale. The 300 Line Project is the first of these, and plans call for the others to be placed in service in 2012 and 2013, subject to receipt of regulatory approvals.”
The Line 300 project included installation of eight looping segments in Pennsylvania and New Jersey, totaling 127 miles of 30-inch diameter pipeline, and the addition of about 55,000 hp of compression through the installation of two compressor stations and upgrades at seven existing stations. The cost was about $700 million. All of the project capacity is contracted under a long-term firm transportation agreement with EQT Energy LLC, El Paso said.
Because of incremental forward and backhaul capacity, increasing delivery capacity to interconnects with Algonquin, Transco and Con Edison in White Plains, NY, Marcellus production is expected by Bentek Energy LLC to grow by about 575 MMcf/d by early 2012. Bentek said it expects Northeast dry gas production to reach 12 Bcf/d by 2016. Analyst George Lippman of Lippman Consulting told NGI he expects production out of just Pennsylvania to reach about 6 Bcf/d by 2016, more than double the current 2.7 Bcf/d.
Last month the Federal Energy Regulatory Commission highlighted just how much gas is coming out of the Marcellus Shale (see NGI, Oct. 24). According to a Winter 2011-12 Energy Market Assessment released by FERC’s Office of Enforcement, “Marcellus Shale production has increased from 2.7 Bcf/d to 4.7 Bcf/d in the past year alone. In northeast Pennsylvania, where production is up 1.3 Bcf/d from 2010 levels, pipeline constraints have led to natural gas prices in the $2.00/MMBtu [area], the lowest in the country.”
Gordon Pickering, director of energy for Navigant Consulting, said the evolution of the region around TGP’s Line 300 from a market area to a supply area is “a natural development.” The next shoe to drop will be increased demand. As gas continues to be competitive with coal as a power generation fuel, additional gas-fired generation will soak up some of the Marcellus gas, Pickering said.
“If you look at the futures market going forward, at least through 2013, gas is apt to continue to be lower [priced] than coal in the Appalachian area [and] in the Northeast area. More switching is apt to happen, so the region will be a consuming region and even a larger consuming region.”
Additionally, the years ahead could see more gas transportation infrastructure built to get Marcellus gas deeper into New York City megalopolis. “That is a real challenge for the industry and has been and maybe will continue to be one that’s just too hard to overcome in the medium term,” Pickering said. “In the meantime there are other areas that seem to be more obvious in terms of trying to absorb some of the Marcellus production: north into Canada perhaps and in the Southeastern United States it looks like through existing long-haul pipelines or at least through a portion of those lines.”
NGI analyst Pat Rau said Susquehanna, Bradford and Tioga counties accounted for 60% of Pennsylvania’s Marcellus gas production during the first half of 2011. “Marcellus production from northeastern Pennsylvania — mainly Susquehanna, Bradford and Tioga counties — has really saturated the market and created quite the capacity bottleneck on Tennessee Line 300 in the area,” Rau said.
The 300 Line Expansion is the most noteworthy of Marcellus projects to come on line of late, it follows the recent start-up of the 450 MMcf/d Laser Northeast Gathering Co. project — 30 miles of 16-inch diameter pipeline in Susquehanna County, PA, and Broome County, NY. The Laser project went online recently, adding capacity from northeastern Pennsylvania. And National Fuel Gas Co. recently completed two related projects that added 150,000 Dth/d of capacity in Washington and Green counties, PA, to carry Marcellus gas to markets.
Equitrans LP, a subsidiary of Pittsburgh-based EQT Corp., recently received approval from FERC to begin construction of a new pipeline in Pennsylvania and West Virginia that will provide additional takeaway capacity for Marcellus producers. The $272 million Sunrise project, which would expand Equitrans’ existing mainline system, is targeted for in-service in summer 2012.
Also in the works is Tennessee’s proposed Northeast Supply Diversification (NSD) project resulted from subsequent customer interest in TGP’s other Northeast projects. The pipeline said it has shipper agreements with Cabot Oil & Gas Corp., Anadarko Energy Services Co. and Seneca Resources Corp. The project involves installation of seven miles of 30-inch diameter pipeline looping in Bradford and Tioga counties, PA, west of Tennessee’s Station 317; other facility modifications in Niagara and Erie counties, NY, and utilization of existing and third-party pipeline capacity. NSD would increase capacity in the region by about 250,000 Dth/d. The FERC-certificated project is expected to be in service during November 2012.
The pipeline’s proposed Northeast Upgrade Project is a smaller project than the 300 Line Project. Its customers are Chesapeake Energy Marketing Inc. and Statoil Natural Gas LLC. The project is an extension of Tennessee’s 200 and 300 Line systems in the heart of the Marcellus Shale and involves construction of 37 miles of looping pipeline in five loops and modification of four compressor stations to provide about 636,000 Dth/d of capacity. A decision on the project is expected from the Federal Energy Regulatory Commission in February. The project could be in service during November 2013.
The proposed MPP Project would provide about 240,000 Dth/d of incremental firm capacity from the region along the existing Line 300 to serve established markets, including those in the Northeast, the pipeline said. Customers are Chesapeake Energy Corp. and Southwestern Energy Co. The project includes installation of 7.9 miles of 30-inch diameter pipeline in Potter County, PA. Also planned are modifications and upgrades at four compressor stations on the Line 300 located in Mercer, Venango, McKean and Potter counties.
The MPP Project is a complement to the 300 Line Project, Northeast Upgrade Project and the NSD project. FERC approval has been requested by the third quarter of 2012; the project could be in service during November 2013.
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