Gulf Coast gas we dont need ya anymore

Bob Bookstaber, Bookstaber & Associates
for RBN Energy

Faced with 7 Bcf/d of new Marcellus production over the past couple of years and possibly another 10 Bcf/d of production growth coming from the Northeast region between now and 2017, the interstate pipeline companies that traditionally delivered natural gas to the Northeast from outside the region have found it necessary to completely reconfigure their assets. In effect, gas supplies that traditionally have originated from the Gulf Coast are being displaced by Marcellus production.  The resulting pipeline projects are expanding capacity and redirecting flows to provide new shippers with competitive access to existing markets. Today we look at the types of pipeline projects going on and then zero in on Tennessee Gas Pipeline.

As we discussed in the introduction to this series (see Déjà vu All Over Again) the growth of oil & gas production in the Marcellus and soon Utica Shales has triggered a huge amount of related infrastructure development to support it. This and several follow up posts in the series will focus on the specifics of interstate natural gas pipeline projects coming on stream over the next several years. These projects were conceived and developed years ago (see As Time Goes By) with commitments from shippers to pay for the reservation of that capacity on a long-term basis. While some of the interstate projects we will address may perform a gathering function through a shipper that is an affiliate of the pipeline, the typical smaller intrastate gathering systems will not be addressed in this series. Today’s post will focus on Kinder Morgan /Tennessee Gas Pipeline’s projects.

There are three types of interstate pipeline projects, described below:

  • The first and most common involve the expansion of an existing pipeline to add capacity in order to connect with another interstate pipeline. Capacity can be added by either (a) adding additional compression to boost pressure and therefore throughput, or (b) adding a new pipeline side-by-side the existing pipeline (i.e, in the same corridor or ditch) and tied in to operate as one pipe – a procedure known as looping. The mix between pipeline loop and compression is a project design issue that can be driven by economics and future expandability plans. Both approaches add pipeline capacity thus enabling delivery into another pipeline and access to additional gas buyers holding capacity to their market. In the case of Marcellus production, this is the most common type and illustrated below in our discussion about Tennessee Gas Pipeline’s projects. Since the growth in market demand is quite modest and much less than the production growth, most projects today are supply driven allowing producers to transport their gas to points where it can be sold to existing transportation contract holders linking different interstate pipelines.
  • The second project type is similar but has the characteristic of being dedicated to a more specific market. It usually involves contracts for transportation downstream of a specific pipeline interconnect or a liquid pricing point to specific city gates for delivery into and subsequent distribution by a Local Delivery Company (LDC), or gas utility Gas utilities usually like to control the “last mile” of pipe to their city gates for security and commercial reasons, and will usually purchase gas at upstream liquid points or the interconnects of multiple pipelines. 
  • The third type of project involves greenfield construction of a new pipeline where no corridor previously existed. This type of project is usually driven by economics to overcome major bottlenecks or to reach markets not accessible from the existing systems. All three of these project types are being developed/constructed in the Northeast today.

Pipeline companies are engaged in expansions in response to the new supply environment.  The footprint and market reach for each is somewhat unique. Each pipeline’s reactions to the market reflect their unique strengths and capabilities. For example, Tennessee and Spectra transport gas to New England and New York, while Williams has a strong position in the New York City and Philadelphia market. National Fuel and Dominion have regional strengths in the producing areas with less access to the larger markets like New York City and New England. There is room for all to participate in some way. We will take a look at the major projects and the benefits they provide to each segment of the industry.

Tennessee Gas Pipeline
Tennessee Gas Pipeline (TGP) is owned by Kinder Morgan. The TGP system originates in the Gulf Coast area and runs through multiple states to Pennsylvania where it splits into two main lines.  The first (200 Line) runs through upstate New York and across Massachusetts into New Hampshire, The second (300 Line) runs across the northern tier of Pennsylvania and New Jersey, just north of New York City and then into Connecticut ultimately reconnecting with the previously mentioned line in central Massachusetts.(See Marcellus Changes Everything) TGP has a number of expansions underway (see map below) that respond to market needs including its Northeast Supply Diversification Project (NSD), Northeast Upgrade Project, MPP, and the Northampton Southwick Project. Last year it placed a major expansion of its 300 Line project into service.  We’ll look at each of these projects below

TGP receives Marcellus and other Appalachian gas supplies into its 300 Line in Pennsylvania and West Virginia. The 300-line expansion (yellow line on the map) placed in service last year added 350,000 Dth/d of firm capacity for delivery downstream into Algonquin Gas Transmission, owned by Spectra, where it could be transported to existing city gates in New Jersey or into New England by existing contract holders. The principal shipper in the 300 Line Project was EQT Energy LLC.

The Northeast Upgrade Project (green line on the map), approved by FERC was a follow up project adding additional infrastructure in the same 300-Line corridor and delivering an additional 636,000 Dth/d to the same interconnect. It is scheduled to be in service in late 2013. The shippers in the Upgrade project included Chesapeake Energy Marketing and Statoil Natural Gas LLC. These shippers benefit from accessing markets on two interstate pipelines serving the entire northeast. 

The Northeast Supply Diversification Project (NSD – see brown line on map) provides capacity to transport 250,000 Dth/d of Marcellus gas away from the 300 Line corridor to other markets served via TGP’s 200 Line. In addition to facilities on its own system, TGP leased capacity on Dominion’s system (filed as a separate but related project) since that reduced the overall cost for transportation and made it easy for the shipper to deal with one pipeline. This capacity allowed Anadarko, Mitsui, and Seneca to deliver gas to a number of points including Niagara for export into Canada on TransCanada’s system, and Cabot into New England on the 200 Line. The NSD Project is scheduled to be in service in November 2012.   

TGP’s MPP project (orange line on the map) provides 240,000 Dth/d of firm transportation service from Marcellus supply area receipt points to pooling points in Pennsylvania and to points upstream on TGP’s system. The principal shippers are Chesapeake and Southwestern. Service on this project is scheduled to commence November 2013. This project provides the shippers with the benefit of accessing pooling points to sell their gas and to “export” Marcellus gas out of the region by transporting the gas to markets upstream on TGP’s system. 

The Northampton Southwick Compressor Project is a smaller scale project that uses additional horsepower to add capacity on a lateral serving a specific local market in western Massachusetts. Two LDCs, Berkshire Gas and Bay State Gas are the principal shippers on this lateral off the mainline having contracted for an additional 10,400 Dth/d commencing November 2012 to satisfy the growth in their service areas.

It is evident that TGP, whose system runs through the heart of the Marcellus Shale supply area, has been very proactive in connecting new local supplies and providing market access for its shippers to both markets on its own system and into other key pipelines including Spectra. TGP’s NSD project provides access for export into TransCanada’s system at Niagara. The expansion of the 300 Line in the Northeast Upgrade and NSD Projects is not as much a change in operation but rather a redirection of gas to the 200 Line  providing access east to New England and west to Niagara, into Algonquin, and firm transportation to points upstream. This expansion and redirection changes the flows and dynamics of TGP’s operation.  Overall these new projects reflect the fact that gas originated from the Gulf Coast is being displaced by Marcellus production.  

In follow up postings we will look at other northeastern pipelines’ projects in response to Marcellus and Appalachian supply growth. And we’ll look at the strategies being employed by gas buyers to restructure their sources of supply and transportation contracts to reflect the new realities of shale gas production in the Northeast.

About the author
Bob Bookstaber is president of Bookstaber & Associates, and provides consulting services in the natural gas and pipeline sectors of the energy business. He has has worked with Exxon, Exxon Chemical, Hill Petroleum and El Paso Corp. in a variety of Business Development, Strategy, Supply, and Marketing roles. Bookstaber has experience in M&A activities and has sold natural gas. He holds a BS in Chemical Engineering and an MBA in Marketing Management.

More by the author:
As time goes by - The long gestation for gas pipeline projects

The gestation period from concept to in-service for a new natural gas pipeline can take at least 3-4 years. A significant number of these projects are underway today in the Northeast US in response to dramatic increases in local production. 2012-10-11


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