Abundant Natural Gas Drives Operators To Liquids Shale Plays

Underground Construction’s sister publication, Pipeline & Gas Journal, in partnership with the Interstate Natural Gas Association of America (INGAA), held its eighth annual Pipeline Opportunities Conference April 4, at the George R. Brown Convention Center in Houston. This industry benchmark event drew more than 400 attendees.

In the natural gas perspective session, Adam Bedard, senior director, energy analysis, Bentek Energy, provided an overview on how low natural gas prices are driving producers to the nation’s oil shale plays.

“If you are a producer and have assets around the country you’re going to go after natural gas liquids or oil because you’re going to get two to three times the value that you would get for dry gas,” he said.

He was also quick to point out that oily plays are holding up quite well. “One example is the Haynesville where 66 rigs are currently active, 43 less than a year ago. If you look at the hot oily plays, Eagle Ford has 250 active rigs, which is an 85 rig increase from a year ago; Permian Basin, 480 active rigs, up 89 from a year ago; and Anadarko 251, up 16 from a year ago.

“The liquids plays are attracting the producers and the rigs.”

In the challenges for oil and natural gas session, Bill Moss, partner, Mayer Brown LLP, provided a look at the prospects for natural gas becoming a world global market, with particular reference to the U.S. market.

Oversupply of gas
Noting the radical changes in supply and demand of natural gas in the U.S. from the shale revolution, Moss said, “In the last five years the entire situation has changed and we’re looking at a vast oversupply of natural gas. Looking back to 2000, Shale gas was 1 percent of our natural gas supply. Future projections by the U. S. Energy Information Administration show shale gas contributing 50 percent of the nation’s gas supply. Moreover, North American natural gas reserves are reportedly sufficient to supply current consumption for more than 100 years.”

Turning to gas prices, he used the accompanying slide to show the disparity in natural gas prices in the U.S. versus select areas of the world.

“Obviously, this incredible difference in price offers a real opportunity if you can get the gas, in the form of LNG, out of the U.S. and export it elsewhere,” he said.

As to future LNG export regulatory hurdles, Moss said he doesn’t view this as insignificant even though a number of companies have filed for LNG export permits and Sabine Pass Liquefaction, a subsidiary of Cheniere Energy Inc., won approval from U.S. regulators to export 2.2 Bcf/d of LNG from a terminal in Sabine Pass, LA. The permit is a second for the Cheniere subsidiary. The company won a permit earlier to export LNG to countries that have a free-trade agreement (FTA) with the U.S., such as Mexico and Canada.

While LNG exports are expected to create jobs and provide markets for domestic natural gas, there is a tremendous amount of political pressure against allowing the export of natural gas. One main concern is that exports could lead to higher natural gas prices in the U.S. That latter point is why Moss said the manufacturing sector is one of the main opponents to the export of natural gas. Manufacturers credit low prices to creating a domestic competitive advantage.

“There is also that core opposition from environmental groups that oppose any extraction of hydrocarbons,” he said.

Other highlights of the session included speaker Robert Bryce, energy writer and author of Power Hungry and Gusher of Lies, who discussed the impact of CO2 emissions. Bryce told attendees that over the last decade the five countries with the biggest percentage growth in CO2 emissions were: Viet Nam, 137 percent; China, 123 percent; Qatar, 115 percent; Trinidad 84 percent; and India with 78 percent.

Over the last decade, he said, U.S. CO2 emissions could have gone to zero and global CO2 emissions still would have increased.

J. Mark Robinson, consultant, URS Corporation, who spent 31 years with the Federal Energy Regulatory Commission, gave a lively Washington perspective focusing on energy past and energy future.

Robinson shared the accompanying slide showing the growth of natural gas by sector from 2010-2035 and the 1.5 Tcf of growth in electric power projected over the 25-year period.

In a questions and answer session, Kelcy C. Warren, chairman and CEO, Energy Transfer Partners, outlined key issues facing midstream operators in today’s fast-moving environment.

A huge challenge, he said, is determining the rules of the game. “The worry is that the government will suddenly say we’re not playing that game anymore and come up with new rules.”

In providing his perspective on mature shale plays, he considered the most profitable, Warren identified the Marcellus, Eagle Ford and the Permian Basin as “extremely profitable.”

“We’re higher right now on the Permian Basin than any other region in the U.S.,” he said. “There are multiple zones in the Permian and the producing community is proven. They know what they’re doing and have been doing it for a long, long time.”

Warren saw problems with future pipeline in the Marcellus. “You don’t know what it will cost to build infrastructure,” he said.

He also noted that the Marcellus is in Pennsylvania and West Virginia, areas that don’t have eminent domain. “The bandwidth of cost estimates could well be a 50 to 70 percent contingency,” he said. “Unlike Texas, where you have eminent domain, you might have a 5 percent contingency.”

Warren also considers the Haynesville Shale dry. “I question whether or not you can drill a Haynesville well today that would make any economic sense unless you are just drilling it to hold acreage,” he said.

As for the Bakken, he sees a lack of infrastructure in this region as a problem. “There is not a lot of natural gas associated with the Bakken,” he said, “and the majority of the crude in the Bakken is presently being trucked to rail sites for shipping wherever possible.”

He anticipates a crude line being built in the Bakken, but for now it remains a problem.

In providing an update on what’s ahead in Washington, Cathy Landry, communications director for INGAA and the INGAA Foundation, shared her views.

For the most part she indicated that since no one knows who will win the election, there is little incentive in Washington to move forward with new legislation. Nevertheless, she did express concern that both the EPA and environmentalists seem to be focusing on methane and the capture of fugitive emissions.

NTSB speaker
Luncheon keynote speaker Mark R. Rosekind, Ph.D. board member, National Transportation Safety Board, provided an informative presentation on the findings and recommendations resulting from the San Bruno explosion.

While noting that mistakes were made prior to the San Bruno incident, Rosekind said pipelines remain the safest and most cost-effective means to transport the extraordinary volumes of natural gas and liquids that fuel our economy.

The NTSB spokesman emphasized that pipeline companies follow strict regulations and standards to ensure pipeline safety. “As a result,” he said, “serious pipeline incidents are increasingly rare.”

A major focus of the pipeline construction session was on new and planned projects. Royston Lightfoot, senior vice president, business development at Crosstex, discussed the Cajun Sibon expansion that involves expanding the company’s fractionation facilities in Louisiana and constructing a new NGL pipeline that would expand access to these facilities and the Louisiana products markets.

The new pipeline will be an extension of the company’s 440-mile Cajun Sibon NGL pipeline.

When completed in 2012, the 130-mile, 12-inch diameter extension will connect the company’s Eunice fractionation facilities in Louisiana to the company’s Mont Belvieu supply pipelines in Texas. Crosstex will invest an estimated $230 million in these projects.

Also in the session, William (Bill) Moler, president and COO, Inergy Midstream L.P. overviewed development of the Marc I Pipeline and the opposition encountered in trying to get the project approved.

According to Moler, 21,000 letters of opposition were submitted to the FERC about the project, while only eight of those came from landowners who would actually be impacted by construction of the project.

Noting that the highest number of letters came from China, Switzerland and France, he said, “The opposition is changing. It is not about the pipeline, it is about hydraulic fracturing. The pipeline simply gives the opposition a voice and – in FERC’s public way of approving pipelines – it gives them a very loud voice.”

Nevertheless, the 39-mile, 30-inch bi-directional Marc I gas pipeline in northern Pennsylvania is under construction and scheduled for completion in the summer of 2012.

The Inergy official also overviewed the company’s plans to jointly market and develop the Commonwealth Pipeline with affiliates of UGI Corp. and WGL Holdings, Inc. The proposed 200-mile, 30 to 36-inch pipeline is expected to transport at least 800,000 Dth/d when it is placed into service in 2015. Its primary purpose is to provide a direct and flexible path for bringing natural gas produced in the Marcellus and Utica Shale plays in Pennsylvania and neighboring states to growing natural gas markets in central and eastern Pennsylvania, the metropolitan areas of Philadelphia, Baltimore, and Washington, D.C., and the Delmarva Peninsula. Plans are for Inergy Midstream to construct and to operate the pipeline, which is expected to cost approximately $1 billion.

J. Mario Rivera, Energy Transfer Partners’ senior vice president, commercial operations, shared the accompanying slide with attendees. It lists the company’s gas pipeline and processing facilities with completion dates into 2013.

Marc Rothbauer, director of operations support, Atmos Energy, focused on the company’s steel service line replacement of distribution service lines.

Rothbauer said the decision to tackle the replacement project came at a time when a lot of distribution integrity management activities were going on.

He said, “After a lot of conversations and data evaluation we looked at where our problems were and it pointed to steel service lines. Those assets had been in the ground for many, many years and had served us well. Nevertheless, a decision was made to move forward with the goal being to replace 100,000 service lines from the main to the customer’s meter.”

After Atmos confirmed exactly where all the service lines were located throughout their system, the project kicked off in March 2010. Today, there are a total of 10 contractors and 117 three-man crews working in 18 different cities to complete the project. Rothbauer said the target completion date for the project is September 2012.

Also, Spectra Energy’s Elie Atme, director, Northwest Business and Development, overviewed the company’s expansion opportunities in the 2014-2017 time frame.

Conference attendees can access the slide on the Pipeline Opportunities website. www.pipelineopportunities.com/

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