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    Moving Marcellus and Utica natural gas south and west

    Housley Carr for RBN Energy

    Natural gas production in the Marcellus/Utica region continues to increase sharply. Appalachian gas is already dominating markets in the Northeast – helped by a series of infrastructure projects already largely in place or underway. Now producers in Pennsylvania, Ohio and West Virginia need to reach additional customers to their south and west--including potentially the biggest prize of all, the LNG export terminals being developed on the Gulf Coast. Gas pipeline takeaway capacity out of Marcellus/Utica has been added in fits and starts to date, but the need for new southern and western outlets for gas from the region is now evident, and midstream companies are planning long line, bi-directional projects with a combined capacity of more than 9 Bcf/d. In this new series, we consider this next round of pipeline projects out of the Marcellus/Utica.

    We begin with a brief recap of how quickly gas production has grown in Marcellus/Utica, and how the regional and interregional pipeline distribution network has had to play a very challenging game of catch-up. As recently as 2010, gas production in Pennsylvania, West Virginia and Ohio totaled less than 1.7 Bcf/d (according to projections from Bentek) ; this month (May 2014), production in the three-state region is expected to average 14.6 Bcf/d, and by 2019 it is expected to grow by another 33%, to almost 22 Bcf/d, as shown below in Figure #1.. The strongest growth since 2010 has occurred in the “dry gas” area in northeastern Pennsylvania where only 270 MMcf/d was being produced in 2010, but 7.8 Bcf/d—yes, nearly 30 times as much—is now being produced, a figure expected to increase to 10.4 Bcf/d by 2019. Production over the next few years is expected to rise even faster in the “wet gas” areas (wet refers to the gas’s high concentrations of natural gas liquids) of southwestern Pennsylvania, eastern Ohio, and West Virginia. In those areas, production has risen from 530 MMcf/d in 2010 to 3.5 Bcf/d now, and is expected to more than double over the next five years, to 7.6 Bcf/d by 2019.

    Figure #1

    Source: Bentek Cell Model

    Before the shale gas boom (as we pointed out in Upside Down—Natural Gas Pipeline Backhauls, Reversals and Null Points), the major US demand centers in the Northeast, Midwest and Southeast, turned to far-away suppliers for their gas needs, including producers along the Gulf Coast and in the Midcontinent, western Canada and the Rockies, as well as LNG imports. Thousand-mile-plus pipeline systems like Columbia Gas, Transco, Tennessee, Texas Eastern and ANR Pipeline linked these producers to demand centers – typically flowing south to north or west to east. All that is changing now because Marcellus/Utica shale gas production closer to demand centers has displaced supplies from further afield. For the past three or four years, the midstream sector has been busy re-plumbing the existing infrastructure to accommodate this new reality. RBN has covered a number of these projects – initially aimed at redistributing Marcellus gas within the Northeast region (see Figure #2 below). For example, in the Return to Sender series (see Return To Sender Part 5 for links to each episode) we covered the infrastructure additions and expansions being made to facilitate increased flows of gas from the Marcellus into Ontario and New York - forcing out western Canadian gas previously feeding these markets. And in Another Gassy Day in New York City, we explained how several major pipeline projects provided a one-third increase in the volume of gas that can be delivered to the New York City area – much of it from the Marcellus.

     Figure #2

    Source: Energy Information Administration

    In this series, we will provide brief updates on most of the Marcellus/Utica-related pipelines talked about in previous blogs, but our focus will be on newer projects now under development, designed to move Marcellus/Utica gas west to the Midwest, and south to the Southeast/Texas/Louisiana Gulf Coast region.

    As was the case with the first round of Marcellus/Utica-related pipeline projects, the newer plans include a mix of project types: bi-directionality efforts, expansions of existing pipelines, and entirely new pipelines, most of them laterals from existing mainlines. The primary focus of these projects is to reverse the flow of  existing long-distance, large-diameter mainlines (the Rockies Express, the Gulf Coast Mainline, the Southeast Main Line and Transco, to name a few) to move large volumes of gas in directions opposite to the lines’ original intent. Open seasons to attract shipper support for these projects so far show strong levels of interest and support. That is not surprising, given the need for Marcellus/Utica producers to develop access to new markets for their gas—especially LNG export facilities and gas-fired power plants, but also major industrial projects being developed in part to take advantage of abundant, low-cost gas. 

    Consider Antero Resources, one of the largest gas producers in the region that has aggressively pursued new pipeline takeaway capacity to the south and west.  According to a mid-April update by the company, in the first quarter of 2014 Antero’s wells in the Marcellus/Utica produced about 785 MMcf/d, 105% more than the same period a year earlier. In anticipation of continued increases in gas production, Antero in mid-April secured 100% of the capacity to be provided by Kinder Morgan/Tennessee Gas Pipeline’s (TGP) $782 million Broad Run Flexibility (BRF) and Broad Run Expansion (BRE) projects. BRF will provide 590 MMcf/d of firm transportation capacity to the south from TGP’s Broad Run Lateral in West Virginia (TGP Zone 3) to delivery points along the Gulf Coast (TGP Zone 1) starting in November 2015, and BRE will provide an additional 200 MMcf/d on the same path starting in November 2017. And the company has also bid successfully for reversed westbound capacity on the Rockies Express (REX) pipeline and another so-far unnamed southbound pipeline system. Thanks to its efforts to secure new take-away capacity to the south and west, Antero’s firm transportation portfolio (totaling 2.4 Bcf/d in 2016; up from 1.1 Bcf/d this year) will enable the company to direct 49% of its Utica/Marcellus gas production to the Gulf Coast, 28% to Appalachia, and 23% to the Midwest within two years. Other Marcellus/Utica producers are looking for similar “ways out” for their gas.

    The planned pipeline projects are just as important for the companies developing major gas-consuming projects—petrochemical plants, steel mills, LNG export facilities, power plants etc.—that are dependent on ample supplies of $4 to $6/MMBtu gas flowing from Ohio, West Virginia and Pennsylvania. The gas-demand numbers are significant. For instance, the Department of Energy already has approved non-Free Trade Agreement (FTA - see I Fought The Law Part 1)  export licenses for Gulf Coast and East Coast LNG projects that by 2019 or so could export up to 8.7 Bcf/d in total.

    Many of the largest pipeline/midstream players are involved in this latest build-out of Marcellus/Utica gas pipeline capacity. They include REX co-owners Tallgrass Energy Partners, Sempra US Gas & Power and Phillips 66, which recently (May 7) closed an open season soliciting interest in moving up to 1.2 Bcf/d of Marcellus/Utica gas east-to-west through REX’s Zone 3 (eastern Ohio to eastern Missouri) starting in June 2015 (see Get Back to Where You Once Belonged). Others include TransCanada, Kinder Morgan, Dominion Transmission, Spectra Energy, Boardwalk Pipeline Partners, and Williams. Taken together, their projects—most slated for completion in the 2015-17 period—will provide more than 9 Bcf/d of new take-away capacity, ease constraints that have hampered gas-production growth in the Marcellus/Utica, and open big, new, long-term markets hundreds of miles away. In the next episode of this series, we will begin an in-depth look at the new round of pipeline projects, and consider how they will help take Marcellus/Utica gas production to the next level.

    Continue to Part two in this series by clicking here.

     

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