Wednesday, January 21, 2009
New Northeast gas market study indicates that Rockies gas will displace traditional Gulf supplies into the Northeast, forcing price competition back to the Henry Hub.
EVERGREEN, CO (January 21, 2009) - According to a new report from BENTEK Energy, the Northeast natural gas market will be able to absorb only a fraction of the 1.8 billion cubic feet per day (Bcf/d) of gas that can be delivered to Clarington, OH, by the Rockies Express (REX) pipeline. Due to downstream constraints beyond Clarington, new supplies from the Rockies will compete directly with gas moving into high-value Northeast markets from traditional supply regions, predominantly the U.S. Gulf. Variable transportation cost disadvantages are likely to force Gulf suppliers to either accept lower prices to remain competitive or be forced into lower-value markets. The REX project is scheduled for completion in November 2009.
Part 2 of BENTEK's "Catch the Wave™" Market Alert series addresses major Northeast gas market developments anticipated when REX reaches Clarington, including (a) the market impact of capacity constraints on pipelines downstream of the Clarington Hub, (b) pricing implications for Southeast/Gulf supplies displaced by Rockies gas, (c) regional market conditions that are expected to determine the winners and losers in the race to build new pipeline capacity across the region; and (d) the most attractive storage facilities being developed or expanded in the Northeast region. The title "Catch the Wave™" refers to BENTEK's proprietary model of the Northeast natural gas pipeline infrastructure that identifies regional pipeline constraints or "waves" within the region.
"The final 195-mile leg of REX from Lebanon, OH, to Clarington was designed to move Rockies supplies beyond the highly capacity-constrained market in western Ohio to a hub with market access to nearly 5.0 Bcf/d of outbound pipeline capacity serving the premium Northeast markets," noted E. Russell (Rusty) Braziel, BENTEK managing director. "Unfortunately, downstream constraints on pipelines between the Clarington Hub and major centers of demand farther east will severely limit the usefulness of that capacity. The resulting gas-on-gas competition will likely displace Southeast/Gulf supplies that have historically served the Northeast market.
"On top of new competition into the Northeast, Southeast/Gulf producers have another problem, and it's a big one," Braziel continued. "Production from the unconventional shale plays continues to increase, regardless of recent cuts in drilling budgets. Several large pipelines have been or will soon be completed, designed specifically to move these volumes eastward into the Southeast/Gulf region, where they can access long-haul pipelines into the Northeast. These supplies are going to collide head-on with pipeline flows backed up by REX into the core of the Southeast/Gulf region in South Louisiana. This means that the epicenter of this seismic market event is not the Northeast, or even the Ohio Valley. It is the Henry Hub."
According to the BENTEK report, there are a number of pipeline projects in the Northeast designed to debottleneck constraints downstream of Clarington, but not until the 2010-2012 timeframe. Of the nine key projects with potential to serve Northeast demand and to bridge across longstanding pipeline constraints, BENTEK's analysis indicates that Tennessee's 300 Line Expansion Project and TETCO's TIME III-TEMAX project are likely to have the greatest market impact based on objective criteria defined in the study. In addition, the report assesses the impact of 12 underground natural gas storage projects planned for the Northeast between now and 2012. These storage projects are expected to add 89 Bcf of working gas capacity, 2.5 Bcf/d of injection capacity and 2.9 Bcf/d of withdrawal capacity. The most attractive projects are those located closest to major Northeast markets, downstream of key pipeline constraints and with interconnects to some of the new pipeline projects. The top projects include Inergy's Thomas Corners and U.S. Salt projects and Dominion's USA storage project.
In addition to its "Catch the Wave™" Market Alerts, BENTEK offers the Northeast Observer™ to provide daily updates and a weekly summary of market developments and a comprehensive analysis of all market factors pertinent to the Northeast region. For more information about BENTEK's "Catch the Wave™" Market Alert series or Northeast Observer™, 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.