Oil Market Uncertainties, Growing Natural Gas Production Projected in 2016

November 2015, Vol. 242, No. 11

Rita Tubb, Executive Editor and Michael Reed, Managing Editor

The Pipeline & Gas Journal 35th Annual 500 Report is the industry’s most comprehensive listing of U.S. energy pipeline systems. As in past years, the report ranks gas distribution, liquids and gas transmission systems. Gas transmission companies are listed by total miles of pipe. Gas distribution operators by number of customers and liquids pipelines by total crude oil and products delivered.

Additional statistical data compiled for the report are based on operating revenue, gas sold, total throughput of natural gas, product deliveries and miles of mains and service lines. About 95% of the data is based on information from calendar year 2014, compiled through direct company contacts and statistics collected at the Federal Energy Regulatory Commission (FERC).

Though every effort is made to ensure that each company’s information is shown correctly, some companies are no longer required to provide statistical data to FERC and did not respond to our inquiries. As a result, some of the data is based on the latest figures available. In the event your company information is incorrect, let us know. We also need to know of any change of address, contact information, mergers and acquisitions.

Energy Trends

The federal Energy Information Administration’s Short-Term Energy and Winter Fuels Outlook (STEO) released Oct. 6 warns that the oil market faces many uncertainties heading into 2016, including the pace and volume at which Iranian oil re-enters the market, the strength of oil consumption growth and responsiveness of non-OPEC production to low oil prices. In the more immediate future, there is potential downward price pressure heading into the fourth quarter of 2015 if refinery runs decline more than expected during the fall maintenance season.

As a result, EIA projects the Brent crude oil price will average $54/b in 2015, $59/b in 2016, unchanged from September’s STEO. West Texas Intermediate (WTI) crude prices average $4/b lower than Brent in 2015, $5/b lower in 2016.

The report noted oil prices, particularly in the second quarter of 2015, were high enough to support continued development drilling in the core areas within the Bakken, Eagle Ford, Niobrara and Permian formations, with July and August showing the first consecutive month-to-month increases in the oil-directed rig count since September-October 2014.

However, WTI prices below $60/b through the forecast period are expected to limit onshore drilling activity and well-completion totals, despite continued increases in rig/well productivity and falling drilling/completion costs. The forecast remains sensitive to actual wellhead prices and fast-changing drilling economics that vary across regions and operators.

While projected oil production in the Gulf of Mexico rises during the forecast period, it declines in Alaska. Production in these areas is less sensitive to short-term price movements than onshore production in the Lower 48 states and reflects anticipated growth from new projects in the Gulf of Mexico and declines from legacy fields in Alaska.

On natural gas pricing, the STEO shows the Henry Hub spot price averaged $2.66/MMBtu in September, a decrease of 11 cents/MMBtu from the August price. Monthly average Henry Hub spot prices are forecast to remain lower than $3/MMBtu through January, and lower than $3.50/MMBtu through the rest of the forecast. The projected Henry Hub price averages $2.81/MMBtu in 2015 and $3.05/MMBtu in 2016.

Natural gas futures contracts for January 2016 delivery traded during the five-day period ending Oct. 1 averaged $2.87/MMBtu. Current options and futures prices imply market participants place the lower and upper bounds for the 95% confidence interval for January 2016 contracts at $1.93/MMBtu and $4.27/MMBtu. At this time in 2014, the natural gas futures contract for January 2015 delivery averaged $4.19/MMBtu, and the corresponding lower and upper limits of the 95% confidence interval were $2.96/MMBtu and $5.94/MMBtu.

The forecast showed marketed natural gas production will rise by 4.2 Bcf/d (5.6%) and by 1.5 Bcf/d (1.9%) in 2015-16, respectively, with increases in the Lower 48 expected to more than offset continuing production declines in the Gulf of Mexico. Increases in drilling efficiency will continue to support growing production despite relatively low natural gas prices. Most of the growth is expected to come from the Marcellus Shale as the backlog of uncompleted wells is reduced and as new pipelines come online to deliver Marcellus gas to markets in the Northeast.

Moreover, increases in domestic natural gas production are expected to reduce demand for imports from Canada and to support growth in exports to Mexico. Earlier this year, natural gas net imports fell to the lowest monthly level since 1987, averaging 2.3 Bcf/d in May and June. EIA expects natural gas exports to Mexico, particularly from the Eagle Ford Shale in South Texas, to grow because of increased demand from Mexico’s electric power sector coupled with flat natural gas production in Mexico.

Survey Results

Liquids’ Top 10. Overall, not much has changed in the past year. All 10 liquids pipeline companies in terms of crude oil deliveries were in the Top 10 in 2014. Only the rankings changed. Enterprise Crude Pipeline moved from the second spot to claim first place with 959,130 bbls; Plains Pipeline moved from first to second place, reporting 905,310 bbls; and Enbridge Energy was third with 767,589 bbls.

Sunoco Pipeline moved from sixth to fourth place, reporting 526,855 bbls. Seaway Crude Pipeline retained fifth place with 398,237 bbls, and ExxonMobil Pipeline fell from fourth last year to sixth this year, reporting 395,351 bbls. Companies in the seventh through tenth positons retained their rankings from last year. The four rankings were claimed by: Marathon Pipeline, 380,145 bbls; LOCAP, 365,834 bbls; Shell Pipeline, 238,475 bbls; and Phillips 66 Pipeline, 212,983, bbls.

Distribution’s Top 10. No changes occurred in the 2015 ranking among LDCs in terms of total gas customers. All kept their respective spots, starting with Southern California Gas in first place with 5,900,000 customers. The next nine were AGL Resources, reporting 4,496,901; by Pacific Gas and Electric, 4,300,000; National Grid, 3,521,687; CenterPoint Energy Operations, 3,373,814; Atmos Energy, 3,042,931; ONE Gas Inc., 2,127,000; Southwest Gas Corp., 1,930,000; and Public Service Electric & Gas/Gas Delivery, 1,797,632.

Gas Transmission’s Top 10. Little change is found among gas transmission companies in terms of miles. DCP Midstream, which claimed the first-place position last year failed to provide new mileage figures for this year’s report. This resulted in the second through sixth rankings last year moving up a notch, resulting in the following claiming the first through sixth positions: Northern Natural Gas, 14,781 miles; Tennessee Gas Pipeline, 11,917 miles; El Paso Natural Gas, 10,222 miles ; Columbia Gas Transmission, 9,641 miles; Texas Eastern Transmission, 9,592 miles; and Transcontinental Gas Pipe Line, 9,216 miles. The seventh through tenth rankings saw Natural Gas Pipeline Co. of America retain the seventh spot with 9,122 miles, followed by ANR Pipeline, 8,882 miles; Southern Natural Gas, 7,033 miles; and Gulf South Pipeline, 6,540 miles.

Editor’s note: For full tables and rankings, please see our print or digital edition.

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