Gas utilities to shape future of US pipeline projects

OREANDA-NEWS. October 13, 2016.  The next phase of US natural gas pipeline development will need to be supported by large gas customers and not debt-laden gas producers.

The shift from producer-backed projects in the US northeast — already in evidence with Duke Energy, Dominion Resources, NextEra Energy and others making significant investments in new infrastructure — is moving west, said Matt Sheehy, Rockies Express pipeline president.

Major gas customers, such as local distribution companies (LDCs), power generators and large industrials want to take advantage of the nation's abundant shale resource that has redefined gas flow and price patterns, he said at the LDC Forum Rockies and West conference in Denver, Colorado.

"I call it the replumbing of America and it is coming west," Sheehy said, citing the Rockies Express as part of the shift. Built to move 1.8 Bcf/d (51mn m3/d) of low-cost gas from Rocky Mountain basins to the midcontinent, the 1,700-mile (2,736km) pipeline now offers firm service to move gas from the Appalachian basins to the midwest and bi-directional capability in Ohio and Illinois, allowing access to new markets for many customers.

"The next phase of growth is going to be on the existing pipelines," Sheehy said. "It happened in the east. You have not seen it in the west."

Gas producers have slashed costs and cut capital spending to adjust to lower commodity prices, but they remain debt-laden and are no longer able to invest in new infrastructure.

"LDCs have the visibility, they know where the population growth is coming from," Sheehy said. LDCs also can make long-term commitments and have strong balance sheets.

"If you have ability to make a commitment, you should participate in the equity alongside" the midstream companies, he said.

"Producers cannot play the same role," said Michael Sloan, an ICF International senior economist, calling the shift "the next phase of the shale revolution."

"Major changes will not be driven by the producers, but will be driven on the demand side by the companies that manage the shift toward demand," Sloan said. "The LDCs, the power generators and other major gas consumers will need to take a bigger role in defining the development of the gas markets."

Sheehy and Sloan recognize the regulatory obstacles such a change creates for traditional LDCs.

"It is a real challenge; you are talking about long-term contracts and a lot of LDCs have not made those commitments or have regulators that have not allowed or encouraged them to make those investments," said Sloan. "It will take a lot of legwork."

A failure to do so could lead to increased price volatility.

Sloan said he sees "significant benefits for LDCs to work with midstream companies to make sure assets are built to address volatility, to make sure gas is where it is is needed."

"The paradigm now is that there is a lot of gas," said Sheehy. "A lot of producers are looking for a friend. You have growing needs. Maybe there is a different way to source your gas."