Natural Gas Intelligence
Unconventional Gas Growth Changing Pipe, Market Dynamics, Bentek Says

Thursday, June 02, 2011

As natural gas pipelines serving traditional long-line routes to market in North America have begun filing for new rate hikes in an attempt to make up for the load lost to locally delivered shale gas, fundamental market changes associated with the rate increases could affect basis differentials going forward, according to a new report from Evergreen, CO-based Bentek Energy.

In its new report, "Running on Empty," Bentek said rate hikes of 30-60% and tariff restructuring proposed by Tennessee Gas, Columbia Gulf and TransCanada all signal a trend among long-haul pipes facing competition and supply changes. As U.S. production continues to rapidly grow, shifting supply locations and more than 70 planned pipeline expansions "will intensify the competition" between new and traditional pipeline systems," the research and analysis firm noted.

"The big shift in U.S. natural gas supply to new onshore unconventional production areas and the large number of new pipelines built over the last few years have led to lower U.S. gas prices, collapsing price spreads across the country and major changes in pipeline capacity utilization on older, long-haul natural gas pipelines," Bentek said in the report. "Some older pipeline systems are struggling to keep pace with these market changes, and a few have proposed major rate increases and tariff rate restructurings in an effort to stem revenue declines."

Since 2005, unconventional onshore production, which includes the Eagle Ford, Haynesville, Fort Worth, East Texas, Fayetteville and Appalachia plays, has risen from 9 Bcf/d to 24 Bcf/d, according to Bentek figures.

Tennessee Gas filed its request, Bentek said, because it has been experiencing a "significant" reduction in gas flows on the Southwestern portions of its line because not as much gas flows from that area to feed the Northeast, which now has locally grown Marcellus Shale gas and supplies from the Rockies Express pipeline.

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