TGPC Could Be First To Carry Marcellus Shale Gas; 2010 Budget News

April 2009 Vol. 236 No. 4

Stephen Barlas, Washington Editor

Despite all the talk about Marcellus Shale gas’s potential for improving East Coast natural gas supply, there have been no big deals between producers and interstate pipelines to move the gas.

That may be changing. Tennessee Gas Pipeline Company (TGPC), a subsidiary of El Paso Corp., expects to submit an application to FERC this summer for construction of its 300 Line Project whose initial purpose is to carry EQT’s Big Shandy Appalachian gas. But the 300 Line’s approximately 300,000 dekatherms per day capacity could be used to move either EQT’s Marcellus gas or someone else’s.

The 300 Line, which would run through Pennsylvania and New Jersey, is the largest new transmission project proposed for the Middle and Southern Atlantic Coast areas. FERC conducted public hearings as part of the pre-filing process in February.
The map on El Paso’s website showing the route of the project has a bright red oval in Pennsylvania adjacent to the route indicating “1 Bcf/d of Marcellus connections.”

Bob Bookstaber, manager of business development for the 300 Line Project, says Marcellus producers are using pipeline capacity owned by electric utilities. “But this new pipeline sets us up to move Marcellus gas in the future,” he says. TGPC just completed an open season to gauge interest of Marcellus producers in signing contracts directly with Tennessee. “We’re in the very, very early stages,” explains Bookstaber, noting some Marcellus producers have shown interest.

“We are evaluating our options on how to best deliver our Marcellus production to market,” states Wayne J. Desbrow, an EQT spokesman.

Tennessee Gas has met with community groups and state agencies in New Jersey and Pennsylvania and FERC held public meetings in conjunction with the project in February. The state environmental protection agencies have voiced satisfaction with TGPC’s flexibility, although some significant challenges remain.

New FERC Chairman Jon Wellinghoff is an advocate for developing Marcellus Shale gas and moving it to the Mid-Atlantic and South Atlantic regions. He made that point in his dissent on the FERC approval of the AES/Sparrows Point LNG project in January. Then, he cited a study by Navigant Consulting estimating the mean recoverable reserve amount at 31.2 Tcf, with maximum recoverable reserves of 262 Tcf and gas-in-place.

“The effective delivery of Marcellus Shale gas could be accomplished with expansion of pipeline and storage infrastructure in the region,” Wellinghoff wrote, describing that as a better alternative to building an LNG facility near Baltimore, which FERC approved by a vote of 4-1.

Marcellus Shale gas production is already under way at low levels. Range Resources Corp. and MarkWest Energy Partners, L.P. announced in October completion of the first phase of their Marcellus Shale infrastructure, including Pennsylvania’s first large-scale gas-processing facility. Range has been completing production facilities and connecting previously drilled wells to the gas-gathering system. Net sales from the gas-processing plant exceed 30 Mmcf/d.

Obama’s Proposed 2010 Budget

President Obama’s proposed fiscal 2010 budget (starting Oct. 1, 2009) includes a $31.5 billion tax increase for oil and natural gas companies over 10 years. That would include a new excise tax on offshore oil and gas production, elimination of some oil recovery tax breaks and repeal of the manufacturing tax deduction for oil and gas companies.

“If enacted as presented, the budget would negatively impact the amount of investment needed to bring more natural gas to market and raise the price of natural gas,” Natural Gas Supply Association President/CEO R. Skip Horvath says. “That is not the right signal to send to U.S. manufacturers who rely on natural gas. The unintended consequence of this budget will be to send manufacturing jobs offshore.”

Martin Edwards, an INGAA spokesman, says the proposed tax hikes would have an indirect impact on transmission companies. “To the extent we are concerned, it is about the impact on producers of domestic natural gas.”

New Pressure To Up Water Infrastructure Spending

On the heels of the $6 billion emergency funding in the stimulus package for the Clean Water and Drinking Water State Revolving Funds, President Obama has proposed a huge increase for both funds in fiscal 2010. His budget has $3.9 billion for the SRFs, a gigantic increase over what Congress is likely to approve for fiscal 2009: $689 million for the CWSRF and $829 million for the DWSRF. The $3.9 billion is divided into $2.4 billion for the CWSRF and $1.5 billion for the DWSRF.

The stimulus boost to the SRFs was a one-year injection. Obama’s proposed funding levels for fiscal 2010 arguably set a new, much higher annual funding level going forward, depending on whether Congress actually appropriates the higher figures, which is open to doubt.

“The increased funding levels show this administration is serious about addressing the water and wastewater infrastructure crisis confronting our communities,” says Ken Kirk, executive director, National Association of Clean Water Agencies (NACWA).

And there may even be more in future years than the $3.9 billion endorsed by Obama for 2010. The House was expected to approve a bill in mid-March reauthorizing the CWSRF, which has not had its provisions updated since 1994. The Water Quality Investment Act (H.R. 1262) passed the House Transportation and Infrastructure Committee by a voice vote on March 5. It authorizes $13.8 billion over five years for the CWSRF; that is $2.76 billion a year, more than the $2.4 billion Obama proposed in his fiscal 2010 budget. In addition, the House bill authorizes $1.8 billion over five years in grants to municipalities and states to control sewer overflows. Again, it is important to emphasize that these are funding ceilings; appropriators can decide to make less available in any given year. The now-outsized federal deficit may prevent appropriators from coming close to any new, higher authorization levels.

The Senate is apt to take up a bill which reauthorizes both SRFs. Adam Krantz, a spokesman for NACWA, points out that bills that pass the House convincingly can get tied up in the Senate for parliamentary reasons such as the ability of one dissenting senator to put a “hold” on a bill. In this case, any number of Senate Republicans could be expected to put a hold on a CWSRF/DWSRF reauthorization because of language in the bill requiring wastewater contractors to pay union wages on all jobs in compliance with the Davis-Bacon law.


Broadband Funding From Stimulus Being Fleshed Out

The two federal agencies that received billions of dollars in the stimulus package for nationwide broadband development held public meetings in March to determine how their $7 billion-plus will be spent. A public comment period was open through mid-April, after which the National Telecommunications and Information Administration (NTIA) and Rural Utilities Service (RUS) will announce the federal rules for downloading their $4.7 billion and $2.5 billion funds respectively. The two agencies are jointly developing a Broadband Technology Opportunities Program (BTOP) whose funds will be directed mostly at residents in underserved areas.

The American Recovery and Reinvestment Act (ARRA) of 2009 — the official name of the stimulus bill – specifies that each state get at least one grant. That money can go to the state or a locality, but also to a nonprofit corporation or foundation. In awarding those grants, the NTIA and RUS are supposed to determine a list of priority uses, such as whether a grant will increase affordability of, and subscribership to, service to the greatest population of users in the area; or provide the greatest broadband speed possible to the greatest population of users in the area; or enhance service for health-care delivery, education, or children to the greatest population of users in the area.

The ARRA states that NTIA shall establish the BTOP as expeditiously as practicable, ensure that all awards are made before the end of fiscal year 2010, and seek assurances from grantees that projects supported by the programs will be substantially completed within two years following an award.

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