BENTEK reports that the Rockies gas supply is increasingly being displaced from the Northeast demand market as capacity expansions have allowed growing local supply from the Marcellus shale to serve a greater share of local demand. This has reduced the price spreads necessary to attract Rockies gas and significantly reduced utilization of the REX Pipeline.
Additionally, Ruby Pipeline, with a takeaway capacity of 1.5 Bcf/d, a lower variable rate and direct access to Malin and the premium PG&E market, has lifted the Opal cash price and allowed Rockies shippers at Opal to swing to the best-priced market. This trend is expected to continue, with more gas remaining in the West as a result of supply growth in the East and more attractive spreads in the West.
Ruby Pipeline and Marcellus production growth led to a 41% drop year-over-year in Rockies supply deliveries to the Northeast and further declines are expected. Opal winter-to-date cash basis has strengthened 13 cents year-over-year and is in positive territory despite flow declines to the Northeast as Ruby Pipeline has absorbed the supply.
Ruby will remain at least 75% utilized on average in 2012 and is expected to fill by next winter as more Rockies supply stays in the West. Despite more supply staying in the West this winter, the Western supply-demand balance is expected to remain tight in 2012, keeping Opal basis strong.
BENTEK also reports natural gas production in the Utica Shale will reach at least 1.2 Bcf/d by the end of 2014. Most of this gas will be transported to Northeast markets and further displace flows from other supply regions. Even with nearly 2 Bcf/d of additional Northeast gas processing capacity scheduled to come online over the next two years, the combined production from the Marcellus and Utica shales could surpass total regional processing capacity by 2015. This would create significant transportation constraints and competition among producers vying for existing processing capacity.
Caiman Energy has said it will invest $30 million in infrastructure to bring rich Utica Shale gas to the company’s processing plant in Marshall County, WV. Dominion is converting the TL-404 line into a wet gas gathering line which will connect with its Natrium plant.
Enterprise Products Partners and Chesapeake Energy recently entered into an agreement to transport ethane from the Marcellus and Utica shales to the U.S. Gulf Coast. Chesapeake is the play’s major acreage holder and plans to increase operating horizontal rigs from four to 30 by the end of 2014. Other major acreage holders including Anadarko, Chevron, CONSOL Energy, EnerVest and Hess have not announced development plans or guidance in the Utica, according to BENTEK.