BENTEK Market Alert: West Absorbs Marcellus Pushback

Thursday, January 05, 2012

BENTEK reports that the Rockies gas supply is increasingly being displaced from the Northeast demand market as capacity expansions have allowed growing local supply from the Marcellus shale to serve a greater share of local demand. This has reduced the price spreads necessary to attract Rockies gas and significantly reduced utilization of the REX Pipeline.

Additionally, Ruby Pipeline, with a takeaway capacity of 1.5 Bcf/d, a lower variable rate and direct access to Malin and the premium PG&E market, has lifted the Opal cash price and allowed Rockies shippers at Opal to swing to the best priced market. This trend is expected to continue, with more gas remaining in the West as a result of supply growth in the East a more attractive spreads in the West.

BENTEK's Market Alert, West Absorbs Marcellus Pushback, analyzes the impact of the new Ruby Pipeline and Marcellus shale’s exponential production growth on the West region, including implications for Opal flows and basis expectations.

Key Takeaways:

- Rockies deliveries to Eastern markets are down 41% year-over-year since Nov. 1 and will face further displacement with continued Eastern shale growth.

- Opal winter-to-date cash basis has strengthened 138% year-over-year and is in positive territory despite this displacement as Ruby Pipeline has absorbed the supply.

- Ruby will be at least 75% utilized on average in 2012 and approach capacity 2012-13, as increasingly more Rockies supply stays in the West.

- Despite more supply staying in the West this winter, the Western supply/demand balance is expected to remain tight in 2012, especially if demand reverts to normal, and keep Opal basis strong this year.

To follow current events in the West and on the Ruby Pipeline, please refer to BENTEK's California/SW Observer and Rockies Observer. To follow natural gas information in the Northeast, please see BENTEK's Northeast Observer, Northeast Production Monitor or Northeast Market Call.