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.
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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.