Pipelines to lucrative Midwest markets welcomed by shale gas drillers
Shale gas producers staring down a supply glut that has pushed prices to record lows in Appalachia are getting their first look at relief.
Several long-awaited pipeline projects are coming online over the next few months that should start increasing the prices some Marcellus and Utica shale drillers get for their gas as it finds paths to more lucrative markets in the Midwest.
“They’ve been held captive to these lower prices in Appalachia with no other place to take their gas,” said Teri Viswanath, a natural gas analyst at BNP Paribas in New York. “The continued cycle of new takeaway projects will accelerate a price increase.”
With high supplies and not enough demand to consume it all here, selling gas in Appalachia has meant taking a deep discount. The spot price on the Dominion South trading point in Southwestern Pennsylvania hit 71 cents per million British thermal units on July 2, which Viswanath said was a record low.
By last week it rebounded to $1.35, but that was less than half the price garnered at the Chicago Citygate trading point, $2.89.
Producers who cannot get their gas on the few lines leading from Pennsylvania to Chicago don’t get that better price.
The first turn of the relief valve started Aug. 1 when Tallgrass Energy Partners reversed flow on a big section of its Rockies Express (REX) Pipeline. Designed to carry gas from the west before the Marcellus shale became so productive, the line can now take it from Clarington on the Ohio River west.
Cecil-based Rice Energy, which contracts to put its gas on the line, expects to “presumably see an immediate step up in higher realized price as compared to those volumes previously being sold into the Appalachia markets,” CEO Daniel Rice IV said.
The project should help people on both ends of the pipe. Producers get a little more for their gas, and the price for consumers in the Midwest drops.
“That Midwest market is very important,” Viswanath said, especially in the fall, winter and spring, when a huge percentage of homes there use gas for heating. More power plants there are switching to gas, too.
Another major project coming online in November should move more gas west just as winter demand ramps up.
Spectra Energy’s Uniontown to Gas City project will get gas from Greene and Washington counties west to Indiana, where the Panhandle Eastern system can send it around the Midwest.
Fort Worth-based Range Resources Corp. has enough space contracted on the pipeline to carry about 28 percent of the gas it produced last quarter from Marcellus wells in Southwestern Pennsylvania.
“This should increase our realized price by approximately $1 (per million BTUs) on this production,” Range CEO Jeff Ventura told analysts on a recent conference call. “The uplift from this project is expected to have a significant impact on our Southwest Marcellus realized pricing for future periods.”
Combined with other projects, having REX and Spectra come online will mean pipelines at the end of the year will carry an additional 6 billion cubic feet of gas per day, compared with the beginning of 2015. After adding another 6 billion cubic feet next year, projects in 2017 are projected to increase pipeline capacity by 16 billion cubic feet.
“That’s when they really turn the corner, in 2017,” Viswanath said. “These are small steps now that will give relief. 2017 is the silver bullet.”
David Conti is a Trib Total Media staff writer. Reach him at 412-388-5802 or [email protected].