Pipeline firms widen US natural gas networks

by Ann Davis

A profound geographic shift in US natural-gas drilling is leading pipeline companies to expand into new territories, even as prices for the fuel appear stuck in a lengthy slump.
A few years ago, pipeline companies were focused on moving plentiful natural gas from the Rocky Mountains to hungry North-eastern markets. Today's challenge is building enough infrastructure to handle the flood of gas now being pumped out of shale-rock formations in Appalachia and the Southeast.

Thanks to improved drilling techniques these shale wells are producing giant volumes early in their lives, relatively cheaply, giving producers faster returns on their investments.
The shift in opportunities is stark: As natural-gas prices fell roughly a one-third from January to early July, gas drilling dropped 79 % in the Permian Basin in Texas and 57 % in the Rockies by rig count, according to Barclays Capital. Yet during the same period, rig counts were at a record high in the Marcellus Shale natural-gas field around Pennsylvania, and had declined just 2 % year-to-date in Louisiana's Haynesville Shale formation.

Kinder Morgan Energy Partners of Houston and Energy Transfer Partners of Dallas have joint ventures for two major pipeline projects to transport gas extracted from newly prolific wells in Texas, Louisiana and Arkansas. One of the projects is the approximately 500-mile Midcontinent Express Pipeline, which serves regions including the Barnett Shale of Texas and the Fayetteville Shale in Arkansas.
Construction of the pipeline's second leg is to be completed Aug. 1, and Kinder says it has booked all the project's available transmission capacity. The other joint project, the 187-mile Fayetteville Express Pipeline through Arkansas, is scheduled for completion in late 2010 or early 2011. Energy Transfer is separately planning the Tiger Pipeline to serve Louisiana's Haynesville Shale by 2011.

Many producers and distributors are betting that demand for natural gas will eventually catch upto growing supplies, as natural gas plays a bigger role in power generation and possibly in fuelling buses and trucks.
Other pipeline operators including Boardwalk Pipeline Partners, with primary offices in Houston and Owensboro, Kentucky, and Regency Energy Partners, of Dallas, are hitching their growth to shale too. Regency announced a joint venture in March to more than double its existing pipeline system in northern Louisiana's Haynesville Shale by the end of this year.

Regency Chief Executive Byron Kelley said that pipes out of the Haynesville region are largely full. Even the announced expansions by his company and others to carry an additional 3.6 bn cf of gas a day out of the Haynesville Shale likely won't be enough. He expects 4 bn cfpd or more of additional gas to be produced from the Haynesville Shale by 2012, so "we fully expect that we will go through a series of expansions."
Boardwalk, an interstate pipeline operator, operates Gulf Coast pipeline assets that had been seen as valuable for distributing trans-Atlantic liquefied-natural-gas imports to US customers. But the bigger opportunity has been expanding Boardwalk's network to carry skyrocketing domestic natural-gas production. The company has mounted about 1,000 miles of expansion projects across the south-eastern shale plays.

The Marcellus region has even less pipeline infrastructure. Some of the companies looking to expand there, such as EQT of Pittsburgh and NiSource of Merrillville, Indiana, already have West Virginia and Pennsylvania pipelines, an advantage because of the lengthy regulatory process required to lay new pipes.
EQT says it is working on a plan to re-engineer the westward flow of an existing pipeline network to feed Marcellus gas to East Coast markets, taking advantage of connections to five interstate pipelines. The company plans to make some initial reroutings effective this year, said Randall Crawford, president of EQT's midstream and distribution business.