Bad weather has been taking the blame for the stock market’s correction last month, but it may have also temporarily saved the Northeast from a glut of gas production that it’s not yet prepared to export. Overproduction without sufficient export capacity could be a problem over the next year or two, but pipelines are being built and refitted (to allow for bi-directional flow) at a breakneck pace.
Northeast pipelines needed to export gas
“Over the last two years, we were concerned that rising Marcellus and Utica production would result in stranded long-haul capacity for large pipelines from the Gulf Coast into the Northeast,” write Citi analysts Faisel Khan and John Tysseland. “With our production forecasts calling for 2.0Bcf/day of annual production growth through 2017, these same pipelines will be needed to move natural gas South and West.”
They estimate that 6.5Bcf/day of new export capacity will be online within three years to take gas from the Northeast to the Gulf Coast, and since a lot of these projects are building on existing infrastructure they should have better than average returns on capital. Considering the Northeast would have become a net gas exporter if this winter had been more typical, there should be plenty of supply to put these new lines to use.
NiSource, Spectra and others have billions in development
NiSource Inc. (NYSE:NI) has three major projects underway, including the $200 million West Side Expansion that will transport Marcellus gas to the Southeast by the end of this year; the $300 million Cameron Access Project that will transport gas from multiple locations to a facility in Hackberry Louisiana, expected to be fully operational in 2019; the Rayne/Leach Express, which Khan and Tysseland estimate will cost $500 million and will transport Marcellus and Utica volumes to Louisiana and could be finished by the end of 2016; and several smaller projects in the tens of millions.
Spectra Energy Corp. (NYSE:SE) has two major projects underway, the $520 million TEAM 2014 (Texas Eastern Appalachia to Market) project that will provide bidirectional flow capacity between Appalachia and the rest of the country with a November 2014 target completion date, and the $500 million OPEN (Ohio Pipeline Energy Network) project that will move Utica and Marcellus gas to multiple markets with 4Q15 target completion date.
Along with NiSource Inc. (NYSE:NI) and Spectra Energy Corp. (NYSE:SE), Williams Companies, Inc. (NYSE:WMB), Kinder Morgan Inc (NYSE:KMI), and Tallgrass Energy Partners LP (NYSE:TEP) also have projects going in the region. “We believe a portfolio of these stocks offers investors exposure to projects with high returns, volume growth and little commodity price exposure (only within these projects),” write Khan and Tysseland.