Constraints, basis disruptions may emerge from gas surplus: study
Knoxville, Tennessee (Platts)--17Jul2008
platts.com
Excess natural gas supply that could build as early as 2010 in the
Southeast and Gulf Coast regions of the US may cause pipeline constraints and
basis disruptions because capacity is not keeping up with burgeoning output
from the region's shale plays, said a Bentek Energy study released Thursday.
Higher gas prices, favorable market conditions, significant cash flow and
investment capital are spurring an unprecedented increase in natural gas
production activity in the unconventional Barnett and Deep Bossier shales in
Texas, the Woodford Shale in Oklahoma and Arkansas' Fayetteville Shale, the
report noted.
"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
Evergreen, Colorado-based firm noted.
"We anticipate an increase of 11.3 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, Bentek's
managing director.
"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 growing
projected in the Southeast/Gulf during the same period," Braziel added.
The consequence is that pipeline capacity out of the Southeast/Gulf
region will fill in less than two years, Bentek said. Outbound pipeline
capacity usage is projected to be at 100% by the winter of 2009-2010, while
demand for capacity will be more than 2.5 Bcf/d greater than the space
available on both current and planned pipelines.
While new pipeline expansions will help alleviate the gap in 2011-2012,
it won't be enough to eliminate the excess supply, the consultant noted.
"This surplus will have to go somewhere," Braziel said, suggesting that
gas traditionally flowing from the Midcontinent and West Texas markets into
the Southeast will be displaced into lower-value markets in the western US.
Then, pipeline corridors to the US Midwest and Ohio Valley will fill with
Southeast/Gulf supply and thus displace Canadian imports, which likely will
aggravate the gas-on-gas competition between Southeast and Rockies producers
as well, he noted.
"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 than can absorb the increased gas flow," Braziel said.
The report is part three of Bentek's "I of the Storm" market report,
evaluating gas markets nationwide as more than 75 new gas pipeline, storage
and liquefied natural gas terminal projects come online in the Southeast
between now and 2012.
--Stephanie Seay, stephanie_seay@platts.com |
