Recent contract data on Kinder Morgan and Energy Transfer’s jointly owned Midcontinent Express Pipeline (MEP) continues to show strong demand for pipeline capacity from the Scoop and Stack areas of Central Oklahoma.

MEP has a long-term lease on Enable’s Oklahoma Intrastate System (EOIT) which allows it to source some of its supply from EOIT’s West Pools, including access to volumes from the Scoop and Stack areas. Production out of the Scoop/Stack area is growing and pipeline capacity linking it to the Southeast Gulf is at a premium. As such, we saw strong recontracting of this available capacity in the third quarter when it came up for renewal.

Looking at the new contracts on MEP, available capacity tying back to the EOIT West Pools was snapped up by Devon Energy, one of the biggest E&P players in Central Oklahoma. Devon announced in the second quarter that it would add as many as six new rigs to the Stack area by year-end 2016 and is clearly hungry for pipeline capacity out of the basin. Devon renewed its expiring contract for 40 MMcf/day on MEP and picked up additional capacity of 25 MMcf/day released from another shipper.

In addition to the added capacity on MEP, Devon recently purchased a segment of Natural Gas Pipeline of America (NGPL) that runs from the Bridgeport Plant in North Texas to Southern Oklahoma. The company plans on extending and converting this line into a wet gathering system which reaches up into the Stack area. The gathering system will allow Devon to move unprocessed volumes down from Central Oklahoma to the underutilized Bridgeport Plant in North Texas where it can be processed and transported to market.

In addition to Devon, other producers have also been active in acquiring pipeline capacity out of the basin. Continental Resources reserved space on Enable Gas Transmission’s (EGT) mainline and the 200 MMcf/day Bradley Lateral that went into service in late 2015. Another unnamed producer has reportedly locked in 75 MMcf/day of capacity on EGT’s Line AD expansion which is scheduled to come online in April 2017.

Other larger projects have even been pitched. Enable has been working on an EOIT expansion named CaSE that would open up 490 MMcf/day of capacity out of the area and a project on EGT named Rosebud that would move over 1 Bcf/day. Additionally, NextEra is in the process of developing Sooner Trails, a pipeline that would also move over 1 Bcf/day out of the basin. However, all of these projects have been in development for well over a year and have still not been put into execution. The delay may indicate shippers are still hesitant to committing significant capital to major projects and prefer to take a more conservative approach with these smaller ones.

Despite the potential hesitation on larger projects, producers adding rigs to the Scoop/Stack area will need to continue to find new ways to get their gas out of the basin. Enable’s CEO Ron Sailor stated in the company’s first-quarter 2016 earnings call that they feel Line AD “is the last open capacity out of that Anadarko region” and that “you are going to have to look at another project to get gas out of the Scoop and Stack.”

Our production and pipeline capacity analysis agrees, showing a lack of pipeline capacity out of the Scoop and Stack area in the upcoming years given potential production increases. If pipeline capacity becomes significantly constrained, regional prices will suffer, a scenario most of these producers would like to avoid. Thus it is likely we will see more pipeline solutions for the Scoop and Stack announced in the future.

Justin Carlson is East Daley’s vice president and managing director of research; Matthew Lewis is director of financial analysis. East Daley, an energy assets research firm, conducts deep analysis that ties asset level forecast to company level financial models. Contact: insight@eastdaley.com.

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