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Follow the Bouncing Ball: Inflows, Outflows and Supply Demand Dynamics by Region

April 8, 2015 | By Charles Nevle

Growing production in the northeast will soon overwhelm regional demand. As a result, numerous pipeline projects are in the works to move gas out of the northeast region. Last week’s Get the Point report described the dynamic of growing Northeast production heading west on projects like Rockies Express Pipeline’s (REX) Zone 3 East to West project. In addition to REX there are several other projects that are looking to add capacity to move gas out of the Northeast to the West. The larger of these projects are shown below. In this week’s Get the Point we discuss the markets these westward-pointed projects are aimed at serving.

Northwest to West Pipeline Projects

The five projects listed have total capacity just above 7.5 Bcf/d, which is a lot of capacity on the table to move west out of Ohio. One might think that will all of this capacity that there is growing demand in the Midwest. PointLogic Energy breaks up the Midwest into two regions, North Central and East Central (see map below), and has charted demand in these two regions over the past four years to see if there is any indication of recent growth. From the chart below and from examining independent weather data, the demand growth seen in the Res/Comm sector of these regions appears to be coming from increasingly cold winters since the winter of 2011/12. Core demand in that region has shown an increase with power and industrial demand rising about 0.6 Bcf/d between 2011 and 2014, but certainly nowhere near enough to begin to absorb all the gas pointed its direction from the pipeline projects above.

North and East Central Demand

So, why would producers in the Northeast want to add all this pipeline capacity to a region with what appears to be very little demand growth opportunities? To answer that we need to look more deeply at flow pattern changes that have been occurring for some time now as production in the Northeast has ramped up.

PointLogic has broken up North American regional flows into 17 regions as displayed in the map below which depicts flows between regions in mmcf/d as of April 5th:

Total Regional Flows

For each of the above regions, PointLogic captures supply, demand, storage, and transport between the surrounding regions. This data is displayed in PointLogic’s North American Regional Flows Report Suite, Supply and Consumption Database, and Consumption Database. Using this data we can see how the increase in Northeast production has impacted surrounding regions. The chart below clearly shows that increased Northeast production has pushed out regional imports.

Northeast Supply/Demand Balance

Between 2011 and 2014 average annual imports into the Northeast region have dropped by 6.1 Bcf/d. These declines are broken out into the following regional flow pattern changes:

Northeast Region Imports

So, as Northeast production has ramped up the region has become less reliant on imports. Imports from the East Central region declined by 4.8 Bcf/d, the most severely impacted of all surrounding regions.  That is a lot of gas to get pushed back to the East Central Region. So, what has the East Central Region done with all that incremental gas? The table below shows that total flows into the East Central Region have climbed by nearly 0.7 bcf/d, but more drastic has been the variation in flows with bordering regions.

East Central Region Imports

The East Central Region has gotten longer by 6.0 Bcf/d from a combination of less Canadian exports and a reversal in flow with the Northeast. In turn, the region has, on a net average annual basis, turned back virtually all gas coming in from the South Central Region and substantially reduced imports of gas from its west side connection with the North Central Region. The story with declining imports from the South Central Region is primarily the story of the declining production in Louisiana, with our production database showing Louisiana onshore and offshore dry gas production declining 3.3 Bcf/d between 2011 and 2014.

The flow pattern changes in occurring in the North Central Region which includes the regionally important Chicago market are a bit more complex. The table below lays out the changes in flows over the past 5 years from bordering regions.

North Central Region Imports

We see the pushback of 2.5 Bcf/d from the East Central. This is primarily the push of the Northeast production decreasing the need for gas to more East. The North Central Region’s imports from the Rockies have declined by 0.7 Bcf/d but this is somewhat offset by increasing volumes pushing out of the West region as gas production in Bakken has ramped up.

TransCanada Deliveries in North Central Region

We are also seeing less reliance on Canadian imports as TransCanada’s two interconnects in the North Central Region, Viking and Great Lakes pipelines, get pushed back with combined volumes on the two pipelines dropping from 1.6 Bcf/d in 2011 to 0.9 Bcf/d in 2014 as Canadian gas demand growth outpaces Canadian production. Keep in mind, that the extremely cold winters of the past two years have worked to keep volumes from Canada propped up higher than they would likely otherwise be to serve winter demand in Chicago and refill storage after the big draw down in the winter of 2013-2014.

So, in essence the pattern we are seeing here is one of growing US production in the Northeast pushing gas west and creating gas-on-gas competition with gas production in the Rockies, Canada, the Bakken and the Southeast. What we are not seeing is a significant growth in core, non-weather related, gas demand in this region, and over the next 5 years it does not appear that this will change much.

LNG Enters Stage Left

One significant change to demand on the horizon is LNG exports. PointLogic’s LNG Infrastructure Informant Database currently is tracking 14 proposed projects in Texas and 23 in Louisiana. In addition, our Pipeline Projects Database is tracking 8 projects with a combined capacity of 5.3 Bcf/d aimed at increasing exports to Mexico from Texas.

Pipeline projects on ANR and NGPL aim to take advantage of increasing gas moving west from Utica and Marcellus on REX and providing an avenue to access growing demand markets in Louisiana and Texas. Such projects include the 0.75 Bcf/d NGPL Gulf Coast Market Expansion Project and ANR’s 1 Bcf/d Southeast Mainline System Reversal project. The upside is that these projects give an alternative to the gas-on-gas competition in markets like Chicago, the downside is that it is an expensive way to get to the Gulf Coast as rate stacking can make projects less attractive than direct routes coming directly from the Northeast.

So, we started out asking what markets the projects built out of the Northeast will pursue, and the answer in the near term is to take market share away by competing with existing supply inflows into the North Central Market. In the longer term, these projects’ goals will include access to pipeline projects aimed southward at the growing demand in the Gulf Coast, in part due to LNG export.

PointLogic is committed to making regional flow dynamics as informative and easy to understand as possible. Over the course of the next several weeks we will be instituting changes to our regional flow boundaries and definitions using data derived from our custom built throughput data sets while also providing flexibility that allows customers to edit these boundaries to suit individual needs.

In coming weeks we will discuss how this westward route from the Northeast compares to some of the projects moving directly south such as projects on Transco, Columbia Gulf, Texas Gas, and TETCO.

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