Thursday, July 17, 2008
Regional flow and basis price disruptions may happen as early as 2010 as outbound capacity restraints and pipeline bottlenecks cause gas supply build-up in the Southeast/Gulf region
EVERGREEN, CO (July 17, 2008) - BENTEK Energy, LLC, has released the third portion of its "I" of the Storm Market Alert Report, evaluating the impact of anticipated changes in natural gas markets nationwide as more than 75 natural gas pipeline, storage and LNG terminal projects are completed and go into service in the Southeast/Gulf region between now and 2012.
The Part III Report explores current tight outbound pipeline capacity in the region, existing bottlenecks that constrain deliveries to such key markets as Florida and the Northeast, and insufficient planned outbound capacity expansions. This sets the stage for future excess supply build-up in the Southeast/Gulf by as early as 2010, just as more natural production comes onstream and moves east into the region from the hot unconventional shale gas basins. This regional supply surplus will create market imbalances with implications for other regions, shifting flow patterns and creating price differential disruptions in the backyard of Henry Hub in Louisiana, the delivery point of NYMEX natural gas futures contracts.
According to BENTEK's analysis, higher gas prices, favorable market conditions, improved market access and significant cash flow and investment capital are spurring an unprecedented increase in natural gas production activity in the unconventional Barnett Shale and Deep Bossier Shale in Texas, the Woodford Shale in Oklahoma and the Fayetteville Shale in Arkansas.
"We anticipate an increase of 11.3 billion cubic feet per day (Bcf/d) of additional wet gas production and 9.4 Bcf/d of dry gas production flowing into the Southeast/Gulf between January 2008 and December 2012," noted Russell (Rusty) Braziel, managing director of BENTEK Energy. "Over the next five years, we expect new gas-fired power generation facilities, industrial load and some residential/commercial demand to drive a modest annual 1.5% demand growth from Texas to Virginia. However, this demand growth is seriously outstripped by the 6.9% average annual supply growth projected in the Southeast/Gulf during the same period."
One of the most important consequences of this production growth is that pipeline capacity out of the Southeast/Gulf region will fill in less than two years. Outbound pipeline capacity utilization is projected to be at 100% by the winter season 2009-2010 with the demand for capacity more than 2.5 Bcf/d greater than that available on both current and planned pipelines out of the region. New pipeline expansions will help reduce this gap in 2011 and 2012, but not enough to eliminate the Southeast regional excess supply build-up problem altogether.
"This surplus gas will have to go somewhere, and there are several likely scenarios for gas flow displacement," Braziel explained. "Gas traditionally moving into the Southeast/Gulf region from the Midcontinent and West Texas will most likely be displaced into lower-value markets in the Western U.S. Pipeline corridors to the Midwest and Ohio Valley filled with Southeast/Gulf supplies will likely displace Canadian imports. This scenario will likely aggravate the gas-on-gas competition between Southeast/Gulf region producers and Rockies producers as well. The unmistakable conclusion is that more outbound pipeline capacity infrastructure and debottlenecking projects are needed sooner rather than later to be able to move increasing supplies out of the region into higher demand markets that can absorb the increased gas flow."
For more information about BENTEK's "I" of the Storm™ Market Alert series, go to www.bentekenergy.com or call BENTEK at 888-251-1264.
About BENTEK Energy LLC
BENTEK Energy, LLC, is the leading energy markets information company. Based in Evergreen, Colorado, BENTEK brings customers the analytical tools and competitive intelligence needed to make time critical, bottom-line decisions in today's natural gas and power markets. Additional information about BENTEK Energy is available on the Web at www.bentekenergy.com.