BENTEK foresees huge shift in natural gas flows
  by: OilOnline
  Tuesday, March 25, 2008

A new report released by BENTEK Energy, LLC, details the impact of anticipated changes in natural gas markets when 40 capital infrastructure projects go into service in the Southeast/Gulf region. According to BENTEK’s analysis, 25 natural gas pipeline projects, 11 natural gas storage projects and four LNG terminals are expected to shift gas flow patterns, disrupt regional pricing relationships and realign the value of transportation capacity across the most complex pipeline grid in North America between early 2008 and midyear 2009.

Some of the biggest names in the natural gas industry currently have projects in the Southeast Gulf under construction, including Boardwalk, CenterPoint, Enbridge, Energy Transfer, Enterprise Products, Kinder Morgan, Plains All American Pipeline, Spectra and more. This level of industry infrastructure expansion has not been seen since the interstate construction boom of the late 1940s and early 1950s. A number of the new pipeline projects are designed to tap into the rich non-conventional Barnett, Woodford and Fayetteville Shale regions and Bossier Sands in East Texas and move that gas into the high-value southeast and northeast markets.

“The pipeline and LNG projects represent a total of more than 25.4 billion cubic feet per day (Bcf/d) of additional capacity serving the Southeast Gulf region, with an additional 6.3 Bcf/d of new storage deliverability as well,” explained BENTEK Energy Managing Director E. Russell (Rusty) Braziel. “But there’s a catch: In the short term there will not be enough incremental supplies to fill the new pipeline and LNG terminal capacity.”

According to the BENTEK report, this initial shortfall in incremental production moving into the Southeast/Gulf will have significant implications for regional flows and pricing. Several of the new pipeline projects with favorable cost and tariff structures will displace or “steal” gas from traditional pipelines that deliver gas into and across the region. Furthermore, the new pipelines will increase demand in the producing areas while increasing supplies in areas that typically enjoy premium pricing. This development is expected to narrow the price differential between the prolific Barnett, Woodford and Fayetteville Shales and the Bossier Sands region and the premium Southeast markets at Transco Zone 4, TETCO M1, FGT Zone 3 and Sonat LA.

The BENTEK report also addresses the likelihood of LNG supplies competing for these markets. Four new LNG import terminals are scheduled to be completed in the Southeast/Gulf region within the next 16 months, adding 7.1 Bcf/d of high-deliverability sendout capacity to the Louisiana and Texas coast. BENTEK concludes that there is little doubt that all four of these facilities will be completed, but there is considerable doubt regarding the frequency and delivery pattern of vessels that will show up at these facilities over the next few years.

“All of this new infrastructure and potential supply is happening in an area surrounding the Henry Hub, delivery point of NYMEX natural gas futures contracts and the reference point for natural gas basis,” Braziel noted. “We expect to see Henry buffeted by successive waves of new capacity expansions, interspersed with supply increases and the occasional influx of LNG cargos. As a result, the natural gas market will experience significant volatility in regional price differentials.”

To provide insight into these issues, BENTEK’s exclusive three-part Market Alert series examines the impact of the new capacity on current gas markets with a focus on gas flows and price implications. BENTEK calls this Market Alert series “I” of the Storm™. At one level, this title refers to the impending storm of disruptive market developments that will impact the Southeast/Gulf region over the next few years. But more specifically, the “I” refers to a new BENTEK proprietary model of regional gas capacities, flows and pricing relationships used to organize and rationalize the highly intricate network of pipelines in the Southeast/Gulf. Gas flows in this model are visualized along corridors shaped similar to an upper case “I”.

In addition, BENTEK has launched the Southeast/Gulf Observer™ to provide daily updates on market developments and a weekly comprehensive analysis of all market factors pertinent to the Southeast Gulf region. For more information about BENTEK’s “I” of the Storm™ Market Alert series, go to www.bentekenergy.com or call BENTEK at 888-251-1264.

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