March 2010 Vol. 237 No. 3

Web Exclusive

BENTEK: Marcellus Shale Production Poised to Disrupt U.S. Natural Gas Market

BENTEK Energy, LLC, predicts that growth in natural gas production from the Marcellus Shale in the Appalachian Basin will result in widespread disruption to regional flow patterns and downward pressure on prices in the Northeast region.

“The North American natural gas market has been transformed in the last three years by the tremendous growth in shale gas production, and the addition of new west-to-east pipeline capacity to move that gas to market,” noted E. Russell (Rusty) Braziel, BENTEK Energy Managing Director. “Recent pipeline projects such as the Rockies Express, Gulf Crossing, Midcontinent Express and others have helped alleviate the long-standing pipeline capacity constraints and have worked to reduce price differentials by increasing relative prices in the West while reducing prices in eastern markets.”

“Now the Marcellus – the ‘Beast in the East’ – is poised to create further market disruptions as natural gas production from the Appalachian Basin expands from 2.2 Bcf/d last year to somewhere between 4.0 and 6.0 Bcf/d by 2014,” Braziel said. “More than 30 gas pipeline expansion projects have been announced to support this growth in the Northeast, representing the addition of more than 12 Bcf/d of new gathering, short-haul and long-haul pipeline transportation capacity and pipeline interconnections in the region.”

Braziel emphasized that even if only a few of these projects are completed, Marcellus production is expected to displace traditional gas supplies serving the Northeast – from Canada, the Southeast/Gulf, the Rocky Mountains and Midcontinent producing areas. “Gas flowing on long-haul pipeline transportation capacity into the Northeast from these traditional supply regions is expected to decline as Northeast utilities and end-users shift to Appalachian supplies,” he said.

Northeast price premiums – one of the last bastions of relatively high prices – are expected to shrink as multiple new pipelines relieve regional transportation constraints. Price spreads to the Northeast from western Canada, the Rocky Mountains and the Southeast/Gulf are expected to tighten. “As a result, natural gas markets will be on a more level playing field from coast to coast,” Braziel said.

The BENTEK “Beast in the East™” Market Alert concludes that not only will there be an impact on U.S. markets, but international markets will feel the pinch as continued growth in domestic shale gas production can be expected to significantly reduce the need for Canadian and LNG imports.

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