Pipeline Projects Support Prices And Production in Eastern U.S.

Texas Eastern’s (TETCO) Uniontown-to-Gas City (U2GC) expansion project will be brought into service earlier than expected, by Aug. 1. TETCO had previously said in federal filings that the project would be completed no later than Nov. 1. U2GC will provide 425 MMcfd of new capacity to flow gas westward to the TETCO interconnect with Panhandle near Gas City, Ind. to serve Midwest markets. In August, service will be available from TETCO’s Uniontown compressor in southwestern PennPennsylvania to Lebanon, Ohio in that state’s southwest region. Service from Lebanon to Gas City will be made available on Sept. 1.

Also, the Rockies Express Pipeline’s (REX) zone 3 east-to-west project will be in service on Aug. 1. The project will provide an additional 1200 MMcfd of firm westbound service. Once completed, zone 3 on REX will be able to flow a total of 1800 MMcfd bi-directionally between the Clarington Hub in eastern Ohio and the Natural Gas Pipeline Co. of America interconnection at Moultrie, Ill. The pipeline will access interconnects along the way. REX has been able to flow as much as 1140 MMcfd westward as far as central Indiana to date.

Genscape comments that the U2GC and REX east-to-west projects should accelerate eastern U.S. production growth by providing critical outlets for otherwise constrained production gas. Genscape’s natural gas production forecast anticipates the REX project could generate an additional 300 MMcfd of production growth this August versus July. A similarly large, though slightly smaller, increase could occur from the U2GC project. Both projects should fundamentally be supportive of basis prices in the Marcellus/Utica supply areas.

However, Genscape anticipates some of the potential uplift may face headwinds due to conditions in the downstream markets that the projects target. The consultancy does not anticipate robust structural demand growth in the Midwest in coming years. Without demand growth, new natural gas supplies moving to the Midwest will have to displace incumbent supplies from production areas in the Mid-Continent, Rockies, and Canadian production areas. This will have to be done through pricing, which may take some steam out of the price gains generated by near-term expansion projects out of eastern producing areas.