August 2015, Vol. 242, No. 8


In the News: NiSource, Columbia Pipeline Group Now Separate Companies

NiSource Inc. and Columbia Pipeline Group announced July 2 separation of the two companies was completed through a distribution of all the common stock of CPG held by NiSource to its shareholders.

NiSource, based in Merrillville, IN, is one of the largest natural gas utility companies in the United States with over 3.5 million customers in seven states under the Columbia Gas and NIPSCO brands. The company also provides electric distribution, generation and transmission services for 500,000 NIPSCO customers in northern Indiana.

“As a pure-play utility company, NiSource offers a fully regulated platform for growth with a storied track record of execution on stakeholder-supported system enhancement opportunities, which are expected to exceed $30 billion over the next 20-plus years,” said NiSource President and CEO Joseph Hamrock.

CPG, based in Houston, includes Columbia Gas Transmission, Columbia Gulf Transmission, Columbia Midstream Group, its ownership interest in Columbia Pipeline Partners LP, and other natural gas pipeline, storage and midstream holdings previously owned by NiSource. In total CPG operates over 15,000 miles of natural gas transmission pipelines, nearly 300 Bcf of natural gas storage working capacity and a growing portfolio of midstream and related facilities.

Pipeline Boom Predicted in Pennsylvania

Over the next three years, the Marcellus Shale region can expect to see about 17 pipeline projects able to ship about 17.3 Bcf/d of natural gas out of Pennsylvania, West Virginia and Ohio to end-users, according to IHS Energy.

Those destinations “are varied, and in addition to New England, some are targeting the Midwest, eastern Canada and the South,” Matthew Piatek, associate director of North American natural gas for IHS, which tracks energy markets, told the Pittsburgh Post-Gazette. “Given the amount of production in the tristate area, it will be able to satisfy the lion’s share of Mid-Atlantic and New England demand and still export a net amount of natural gas.”

As natural gas production grew in the Marcellus and Utica regions, the pipeline network to move the gas to market has maxed out, leading to excess supply and depressed natural gas prices in Pennsylvania, even as New England and New York weathered dramatic price spikes during high-demand winter months.
“There will be significant relief with the buildout happening this year,” said Lindsay Schneider, principal analyst with Wood Mackenzie’s natural gas team.

Still, next summer could look a bit different from this one as low natural gas prices prompt drillers to pull back production, Schneider noted. From 2014-2015, Wood Mackenzie estimates supply growth of 2.1 Bcf/d from the Marcellus. In 2015-2016, that could fall to 1.8 Bcf/d.

Even with a slowdown, production should grow, Schneider said. “The supply growth will have to catch up with pipeline capacity later this decade. That’s very different than now where exit capacity has to catch up with supply.”

More end-users are signing up to get gas, rather than drillers pushing for the projects, said Piatek. “That’s been one of the areas we expect to see major growth in demand, particularly for LNG exports from the Atlantic and Gulf Coast areas, new gas-fired generation in the Southeast, as well as an appetite for [local distribution companies] through the Midwest.”

Mihoko Manabe, senior vice president at Moody’s Investor Services, said more Greenfield projects are in the works. Moody’s expects the wave of construction to crest around 2017-2018, with “the huge, billion dollar projects.”

“This is a once-in-a-lifetime construction cycle. Once the infrastructure is built, the activity will die down. That’s why there is so much frenetic activity in pipeline development. If you don’t seize the moment now, a competing pipeline will build the way out.”

The scale is significant in terms of the country’s natural gas infrastructure, she added. “The Marcellus is re-plumbing the gas flows of the eastern half of the U.S. in a big way.”

Separately, Pennsylvania Gov. Tom Wolf appointed 48 individuals to participate on the Pennsylvania Pipeline Infrastructure Taskforce, which will be chaired by Department of Environmental Protection Secretary John Quigley. The group of experts and stakeholders will recommend policies, guidelines and best practices to guide the anticipated and unprecedented buildout of pipeline infrastructure expected to take place across Pennsylvania during the next decade.

Industrial Demand for Gas Slips in First Half

U.S. manufacturers did not use as much excess shale gas in the first half of 2015 as expected, but the shortfall may not last, thanks to a looming Gulf Coast manufacturing boom. Average industrial demand for gas in 2015 was expected to rise 4% over 2014, according to federal energy forecasts. It has slipped 1% to 21.7 Bcf/d, cited Thomson Reuters Analytics.
The primary reason for the decline was a milder winter than last year’s brutal cold in the heavily industrialized Midwest and Gulf Coast. Experts expect the industrial sector to become less weather-sensitive as more manufacturing facilities enter service along the Gulf Coast.

Chemical companies alone expect to spend over $100 billion to build or expand over 200 U.S. projects and create over 300,000 jobs by 2023, according to the American Chemistry Council.

“The boom in industrial demand will not take off until 2017-2020 when many new manufacturing facilities, especially chemical plants, enter service,” said Gregory Shuttlesworth of the PIRA Energy Group in New York.

Power generators account for 33% of gas consumption, burning on average 23.9 Bcf/d in 2015. That compared with 20.1 Bcf/d a year earlier and a 10-year average of 19 Bcf/d as dozens of coal-fired plants are retired for economic and environmental reasons.

Hess Sells Half of Bakken Midstream Assets

Oil and natural gas producer Hess Corp. plans to sell half of its Bakken midstream assets to private equity firm Global Infrastructure Partners for $2.68 billion and form a joint venture. The master limited partnership will file for an initial public offering of its common units upon closing of the transaction early in the third quarter.

“It was a positive surprise, that’s why the market likes it better,” Fadel Gheit, an analyst at Oppenheimer & Co., told Reuters. “Nobody really thought of a joint venture and then make it an MLP and do an IPO.”

The transaction values the midstream assets at about $18.70 per share, nearly three times their estimated worth of $6.80 per share. Hess plans to form a publicly traded MLP comprising its pipeline and storage assets in North Dakota’s Bakken oil shale field.

Including a debt offering by the joint venture, Hess said it will receive $3 billion from the asset sale. Assets included are a gas-processing plant, a crude oil truck, a pipeline terminal and a rail-loading terminal in North Dakota. The MLP will also include a propane storage cavern, as well as a rail and truck-loading facility in Mentor, MN. Hess will retain control of the midstream assets’ operations.

Shell Chemical Wins Air Permit for Proposed Marcellus Ethane Plant

Shell Chemical was granted an air quality permit for a proposed petrochemical plant in western Pennsylvania, “a critical milestone” as it decides whether to build the multibillion-dollar project along the Ohio River.

The state Department of Environmental Protection approved the company’s air quality plan and several water-related permits for the site in Potter Township, Beaver County. Shell bought the former zinc plant this year and is still evaluating whether to build the ethane cracker about 25 miles northwest of Pittsburgh. The plant would convert ethane from Marcellus Shale natural gas liquids into chemicals used to make plastics, tires and even antifreeze.

CorEnergy to Acquire Grand Isle Gathering System for $245 Million

CorEnergy Infrastructure Trust will pay Energy XXU USA $245 million for its Grand Isle Gathering System (GIGS), a subsea, midstream pipeline with related onshore facilities serving oil-producing fields in the shallow portion of the Gulf of Mexico.

GIGS includes 153 miles of undersea pipeline, connecting to seven oil fields, including four of the top 15 largest fields in the Gulf of Mexico shelf region. Its customers include ExxonMobil and Shell. The company transports about 18,000 bpd of oil and 42,000 bpd of water with a capacity of 120,000 bpd.

Kinder Morgan Units File for LNG Liquefaction Project

Kinder Morgan units Gulf LNG Liquefaction Company (GLLC) and Gulf LNG Energy (GLE) filed an application with FERC for construction and operation of a new liquefaction and export facilities at GLE’s existing regasification terminal Jackson County, MS.

Gulf LNG Pipeline (GLP) notified FERC minor modifications will be made to the existing pipeline facilities that interconnect with the terminal under GLP’s blanket authorization from the FERC. The applicants requested that FERC grant approvals no later than June 17, 2016.

The single LNG train in Phase 1 of the facility is expected to cost $5 billion and be in service in the fourth quarter of 2020. A second train, planned for Phase 2 and costing about $3 billion, should be on line in the fourth quarter of 2021.

Federal Study Notes Higher GHG from Oil Sands

A new study funded by the U.S. Department of Energy (DOE) found crude extracted from Canada’s oil sands region leads to greenhouse gas emissions that are 20% higher on average than emissions from conventionally produced U.S. crude.

“All crudes are not created equally,” Hao Cai, the study’s lead researcher at the DOE’s Argonne National Laboratory, told the Wall Street Journal.

Researchers studied 27 oil sands projects in Alberta from 2008, calculating the total “well-to-wheel” emissions from oil field extraction, processing, refining, transport and final consumption. The peer-reviewed study was conducted jointly by the Argonne lab, Stanford University and the Institute of Transportation Studies at the University of California, Davis.

The team found that gasoline and diesel derived from Canadian oil sands crude emits 18-21% more greenhouse gas emissions than the same products made from conventional U.S. crude. Unlike other oil, the Canadian crude must be mined or melted out of the ground. The tarlike substance must then be processed before it’s suitable for refining, another energy-intensive stage.

ExxonMobil Planning to Decommission Sable

An ExxonMobil Canada spokesman said the firm is developing a timetable to decommission the wells off Sable Island. Merle MacIsaac said ExxonMobil will seek expressions of interest over the next year for the project. The plugging and abandoning of the wells could begin by 2017.

Decommissioning work includes removing production facilities that require the use of heavy-lift vessels at an onshore site. The company is considering sites both in Point Tupper, Nova Scotia and outside the province for the onshore work, MacIsaac said.

The project development plan envisioned the Sable project, which began in 1999, would last 25 years. Natural gas reservoirs have been in gradual decline since the last production well was drilled in 2010.

The company has sought interest from other companies in developing satellite fields in the Sable project. “We’ve made efforts in recent years to market those and have been open to providing access to our infrastructure on a commercial basis,” said MacIsaac. “We haven’t been successful but we do remain open to discussions on that topic.”

Southcross Energy Partners Completes NGL Pipelines

Dallas-based Southcross Energy Partners has completed a 60,000 bbls/d Y-grade pipeline connecting Southcross’ Woodsboro processing facility to Southcross Holdings LP’s 63,000-bbls/d Robstown Fractionator near Corpus Christi, TX and a 20,000-bbls/d propane pipeline from Southcross’ Bonnie View Fractionator to the Corpus Christi area for delivery to end-use customers.

The NGL Pipelines were part of the transaction announced in May with construction expected to be complete in July.

In addition, the first of the two fractionation trains at Robstown is operating at about 32,000 bbls/d of Y-grade. The second fractionation train at Robstown is in the commissioning phase and remains on target to be operational by August.

Legacy Reserves Acquiring New Assets in East Texas

Legacy Reserves has agreements with affiliates of Anadarko Petroleum and Western Gas Partners, LP to purchase natural gas properties and gathering and processing assets in East Texas for a combined $440 million. The properties represent Legacy’s entry into a new basin in East Texas and into gathering and processing operations supporting the natural gas properties.

The acquisition includes:

• Estimated proved reserves of approximately 420 Bcfe, of which 100% are natural gas, 95% are classified as proved developed producing and operated.

• Estimated Q3 2015 production of approximately 70 MMcfe/d, yielding proved reserves-to-production ratio of 16.4 years.

• A multi-year development plan centered on recompletions and workovers to further flatten production declines and extend the productive life of the fields.

• Significant additional drilling inventory in a higher gas price environment.

• 567 miles of high-pressure pipeline and low-pressure gathering lines and a 502 MMcfe/d processing plant with access to five major gas markets.

“Today we are pleased to announce the signing of two meaningful acquisitions and the ability to use our ample liquidity to position ourselves for success in 2016 and beyond,” said Paul Horne, Legacy’s president and CEO. “This acquisition represents a material entry into East Texas, a region we have wanted to enter for several years due to its long-lived, low-decline, low-cost nature and high potential for bolt-on acquisitions.”

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