?The introduction of new pipeline capacity from the Rockies and from shale-basin gas will be the first step toward a “truly national natural gas market,” reports Rehan Rashid, an analyst with Arlington, Virginia-based Friedman, Billings, Ramsey & Co. Inc.


The bulk of incremental supply growth is expected to come from four major Midcontinent, East Texas and northwestern Louisiana shale basins: the Barnett, Woodford, Fayetteville and Haynesville.


“We estimate that 16 major pipeline projects have been announced that are designed to move natural gas from these basins to major market centers,” he says. True incremental take-away capacity from the shale basins will be 3.5 billion cubic feet (Bcf) per day by third-quarter 2009, he says, and grow to 7.3 Bcf in 2009 and 9.1 Bcf in 2010.


“The new pipeline projects will make demand centers in the U.S. Southeast, Northeast and Midwest accessible.”


The current lack of pipeline infrastructure, primarily from Midcontinent and Rockies gas production, has created a disconnect between the major producing and consuming regions. As a result, the gas market in the U.S. has been regionalized, and large fluctuations between spot prices in various geographic regions exist. The new infrastructure build-out will connect Midcontinent, Southern U.S. and Rockies production and is the first major step toward creating a national gas market.


Rockies Express East is scheduled to open in July 2009 to trans?port 1.8 Bcf per day to Lebanon, Ohio, eventually terminating in eastern Ohio. Several projects have been proposed to build Rex East further, allowing Rockies gas to penetrate the U.S. Northeast market.


Gas demand in the U.S. Southeast, Northeast and Midwest has not grown substantially since 2001, he reports. Combined demand for the three regions was 27 Bcf per day in 2001, compared with 29.6 Bcf in 2007. The majority of demand growth is in the U.S. Southeast. The U.S. Northeast consumed 13 Bcf per day in 2007, resulting in a compounded annual growth rate of 1.3% since 2001.


“We believe that the historical 1.3% CAGR—let alone any slowdown in the CAGR—will not be enough to keep pace with the introduction of new supply from shale basins and Rockies production. Exacerbating the oversupply problem will be, we believe, the growth of natural gas production from Appalachia, particularly the Marcellus shale, which should effectively strand new gas production in the Northeast region,” he says.

Comments