July 2014, Vol. 241, No. 7


Marcellus Influencing Shifts In Pipeline Activity

Michael Reed, Managing Editor

Vast production growth in the northeastern United States is significantly altering the pipeline flow throughout much of the continent, according to a recent Moody’s Investors Service report.

Moody’s cited an increasing number of open seasons that have resulted in committed projects that are directly related to the Marcellus Shale play for the resurgence, where production has risen from 1.2 Bcf/d in 2007 to 14.8 Bcf/d with Energy Information Administration (EIA) estimates for 2020 approaching 25 Bcf/d.

The new projects, to a large extent, involve reversing flow direction or the shipping of liquids rather than gas, in response to growing demand from gas-fired power plants and liquefied natural gas (LNG) export terminals. However, new pipelines are also being built. To date, much of the activity for companies, including TETCO, Transco and Tennessee has involved local debottlenecking projects to move gas primarily to the East Coast.

“After basis collapsed and excess capacity developed on some lines, we’re finally starting to see demand beginning to materialize,” said Mihoko Manabe, a Moody’s senior vice president.

Moody’s projected LNG demand for natural from Sabine Pass, along the Texas Gulf Coast, will require 850 Bcf per year – about 40% more than needed by South California Gas Co., the largest LDC in the country – which will prompt much of the reversal activity. In additional, Mexico’s new energy strategy will double gas-fired power generation, which will affect Texas gas producers and service along the Texas-Mexico border.

The report pointed out Tennessee and TETCO have secured projects to serve the 1.7 Bcf/d LNG plant in Cameron, LA, and Transco signed contracts for its Gulf Trace project to serve 2.2 Bcf/d of capacity at Sabine Pass, which also has interconnects with Tennessee and TETCO. The LNG-related pipeline projects should be online in 2016 or 2017, coinciding with completion of the liquefaction facilities.

In contrast to the Greenfield pipeline projects that sprung up in the early days of the Marcellus boom, newer projects have more manageable prices, running in the “tens-to-hundreds of million dollars range,” the report said. These realignment projects are a largely comprised of adding looping and compression to existing lines. Also, gas is traveling over shorter distances from production areas.

“Shorter paths are not necessarily a bad thing if the pipeline has found a new replacement market closer by,” said Manabe. “With the Marcellus meeting more northeastern demand, Gulf Coast supplies are being routed to the Southeast, where the new demand for gas-fired power generation is the greatest. Massive demand for gas is building south of the border in Mexico, while Canada seeks to monetize its British Columbia shale gas as LNG exports in the next decade.”

The report said the effect from the Marcellus play has been regional, benefiting the pipelines in the East the most with organic growth opportunities to develop projects to ship Marcellus gas further north, west and south, reversing the traditional flow east of the Mississippi. Additionally, the dearth of capacity in New England will provide growth for TETCO’s Algonquin Gas Transmission and Tennessee Gas Pipeline.

In the Midwest, however, Marcellus has proved more of a challenge, particularly for pipelines built to take gas west-to-east like the Rockies Express Pipeline or south-to-north like Texas Gas Transmission, but a recent revival of open season activity among them points to some real projects on the horizon. If the proposals turn into real projects, they will generate new revenues in a few years after going into service.

West of Marcellus’s zone of influence, the report found the business models remain stable. Further west, traditional gas flows for pipelines like Northern Natural Gas Company, El Paso Natural Gas Company and Northwest Pipeline have not been affected.

Moody’s found pipelines are managing stranded asset risk through new commercial uses or restructured rates. Demand from LNG and gas-fired power generation is beginning to result projects secured by long-term contracts, many of which will be finished in the next two or three years.

“We anticipate future rate cases will address aligning cost of service to the changing ways that the systems are being used,” the report said.

Moody’s data showed Marcellus producers in Pennsylvania have more than quadrupled the amount of gas sent northeast since the shale boom began, while Texas producers tripled the amount of supplies sent to southeastern generators.

The report, “North American Natural Gas Pipelines: Retooling as Gas Flows Shift, New Demand Emerges from LNG and Power,” provided analysis of a select peer group of pipelines in different regions across North America. Those pipelines include: Spectra Energy subsidiary Texas Eastern Transmission, Williams’ Transcontinental Gas Pipeline Company and Northwest Pipeline, Kinder Morgan’s Tennessee Gas Pipeline Company and El Paso Natural Gas Company, Boardwalk’s Texas Gas Transmission, TransCanada’s Canadian Mainline, Berkshire Hathaway Energy’s Northern Natural Gas Company, Rockies Express Pipeline, and NGPL PipeCo.

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