New Pipeline Tariff Structures Drive Shifts In Natural Gas Flows And Basis

July 2011, Vol. 238 No. 7

Major increases in U.S. shale gas production and the large number of new pipelines built over the last few years have led to lower U.S. natural gas prices, collapsing price spreads and major changes in pipeline capacity utilization on older, long-haul natural gas pipelines.

Some of these traditional pipeline systems are struggling to keep pace with these market changes and a few have proposed major rate increases and tariff rate restructurings in an effort to stem revenue declines.

Running on Empty, a new Market Alert from BENTEK Energy, examines some of the fundamental market changes that are developing as a result of rate cases filed by Tennessee Gas and Columbia Gulf in the U.S. and TransCanada PipeLines in Canada, and then expands this analysis to consider the impact on flows and basis differentials in North America.

“Recent rate cases filed by Tennessee, Columbia Gulf and TransCanada are responding to intense competitive pressures in the natural gas pipeline business,” said BENTEK Vice President E. Russell (Rusty) Braziel. “All three filings increase rates to make up for declining throughput, and the U.S. pipelines are making rate design changes that will impact the marginal cost of transporting gas. These marginal cost shifts will impact both basis and natural gas flow patterns in the regions served by these pipes.”

Running on Empty provides an in-depth assessment of the market implications of these three key rate cases, including competitive flow economics, cost differentials and risk factors. The report also describes a possible scenario in which declining capacity utilization on certain long-haul pipelines may lead to a vicious cycle of rising rates and falling usage as pipeline competition intensifies.

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