Wednesday, June 16, 2010
16 June, 2010
US interstate pipelines added nearly 6 Bcf/d (170mn m³/d) in west-to-east capacity since January 2009, forever altering long-standing basis differentials across the imaginary line referred to as the ‘Great Divide', according to Jim Simpson, vice president at Bentek Energy.
The imaginary line, running from the Gulf of Mexico to the Great Lakes, follows long-haul interstate gas pipeline routes which have delivered supplies to major consuming markets in the east for decades. With no delivery options, supplies in the west were considered ‘captive'.
But unconventional shale development has re-arranged delivery patterns on North America's traditional natural gas landscape, Simpson said. The current chase for higher value Btus in liquids-rich plays, primarily in the west, promises to shake up delivery patterns too.
And depending on the rate and location of new gas production and prices over the next three years, displacement backhauls are likely to continue, Simpson said at a Bentek conference in Houston last week. Currently, supply is increasing east of the line and declining in the west, further tightening west-east basis spreads that averaged more than 40¢/mmBtu in 1999.
Below-average breakeven recovery costs are now lower in east region shales compared to plays in the west. Breakeven costs in the Marcellus, Haynesville, and Fayetteville, all east of the divide, are below a 2009 average of about $3.92/mmBtu. At that price, midcontinent and western supply basins get priced-out, Simpson said.
Haynesville and Marcellus shale production has impacted supply routes in the Gulf States and southeast and Marcellus supply continues to pressure southeast Canadian supply — creating backhauls by displacement. Haynesville production is up about 1 Bcf/d since 1 January 2009 and Marcellus production is just starting to ramp up, with an increase of nearly 0.6 Bcf/d increase in that period.
Changing dynamics will continue to “teeter” natural gas delivery across the divide and future asset development will be regionally focused, Simpson said. Oil-to-gas pricing differentials now driving increased liquids-rich production in the west and coal-to-gas switching in the east will be critical in determining gas displacement patterns in the future.
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