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So You Think You Want to Move Gas on TETCO?

November 6, 2015 | By Luke Larsen

In this week’s Get the Point, we will review current Texas Eastern Operations and associated projects as well as outline the pipeline’s complicated capacity restrictions along the entire system which currently makes it one of the most difficult pipelines for shippers to conduct day to day arbitrage business. 

Texas-based Spectra Energy Corporation, owner of Texas Eastern Transmission Co. (TETCO) released its third-quarter 2015 financials on Nov. 4. 

Like virtually everyone in the distribution and transmission sector, Spectra has been preoccupied with massive system modifications and project development, as it moves through a $25 billion Capex investment program over the next decade to support fee-based gas infrastructure growth ventures. Spectra anticipates that it will commission around eight separate projects before the end of 2016.

The most recent projects deployed so far in 2015 have helped underwrite the aforementioned strong showing in the quarter.

Next on the list is Spectra’s much-anticipated OPEN Project (Ohio Pipeline Energy Network), which went into partial in-service in September and which was expected to receive full commissioning in November. But STILL has not yet received all of the necessary rubber stamping from FERC. 

Other projects, from Spectra's earnings release:

  • The Uniontown to Gas City project began delivering gas to the Midwest on Aug. 1 and was fully in service Sept. 1, two months ahead of schedule.
  • Construction is underway on the AIM project in New England, which is on track to be in service in the second half of 2016.
  • The FERC application for PennEast was filed in September, and the applications for four other projects, Atlantic Bridge, Access South, Adair Southwest, and the Lebanon Extension, were filed in October. These projects are all on schedule for their respective in-service dates.

TETCO: A brief history

Texas Eastern Transmission (TETCO) was the first natural gas pipeline system to extend from the Southwest to the Northeast, connecting at the time the most prolific producing regions of East Texas with the largest per-capita energy consuming-region in the world at that time. This system initially originated from the conversion of the Big Inch and Little Big Inch oil pipelines shortly after World War II.

TETCO Pipeline Map

Source: Spectra Energy*

TETCO Origination: Born from a pair of strategic land-based oil pipelines

In perhaps one of the earliest known examples of homeland security decisions and the primary reason behind the construction of what would later become known as Texas Eastern Transmission was the fact that moving crude within the confines of the US border had become a viable option that would serve multiple interests.

Craig Sprowl, Coordinator, Communication Services at Spectra Energy details the history of Texas Eastern as follows: “Even before the United States became involved in World War II, President Roosevelt was concerned about the safety of U.S. crude oil transportation. You see oil from Texas was originally moved to the Northeast for the most part by tanker. However, after the United States became involved in the war, an increasing number of ships were being lost to German U-boats. Consequently, the Secretary of the Interior in the administration worked to promote the construction of a pipeline that would move oil from Texas to markets in the Northeast. This idea would come to fruition behind an aggressive government backed project in early 1942.

“The decision was made to build two pipelines, a 24-inch diameter line, known as the Big Inch, and a 20-inch line, known as the Little Big Inch. War Emergency Pipelines, Inc., a nonprofit company, was formed at the request of the government and staffed from a select group of men from the US oil industry. Work on the Big Inch and Little Big Inch lines began in earnest by August 1942, and both pipelines were finished by December the following year (1943).”

The end result: Two major crude oil pipelines had been built within 18 months that connected the productive oil fields of East Texas to one of the largest and still grown industrial and residential demand center in the world let alone just the U.S.

The end of the war in 1945 brought peace back to the open seas, and the movement of crude by tanker once again became the predominant method of oil commerce. As a result, it was decided that these assets which had safeguarded U.S. energy interests throughout much of the troubled decade could eventually be privatized.         

“This nearly immediate transition by today’s standards occurred back on January 30, 1947, as the Texas Eastern Transmission Corporation was established. In February of the same year, the new company submitted a bid of $143 million dollars to the War Assets Administration in order to purchase the Big Inch and Little Big Inch pipelines. Texas Eastern’s bid was accepted. The company purchased 3,182 miles of pipeline, extending from Texas to the East Coast, which could transport natural gas, petroleum or petroleum products. The areas served by the system were among the greatest potential natural gas markets in the country. Shreveport, LA was designated the original headquarters for the distribution company,” Sprowl wrote.

“Texas Eastern began the task of expanding the capacity of the two pipelines and improving their efficiency. First, the pipelines had to be converted to transport natural gas instead of oil. Originally, the gas moved through the pipelines under its own pressure but eventually as capacity was expanded to support a growing consumer base which ultimately led to constantly varying conditions along the pipeline and this brought about the need for compressor stations to be built to facilitate operations. In the first 18 months of moving gas, 21 compressor stations were constructed along the two lines.

“Texas Eastern would continue to expand the pipeline system. Engineers developed new equipment and techniques. In 10 years, the system more than doubled its pipeline mileage. In 1951, Texas Eastern built a third transmission line named after its point of origin at Kosciusko, Mississippi: the 791-mile, 30-inch diameter line extended to Connellsville, Pennsylvania. At the northern end of the Kosciusko pipeline, Texas Eastern also developed a new underground storage facility at Oakford Field in Pennsylvania with the intent of utilizing the field to manage the tremendous seasonality associated with natural gas consumption in the US at that time,” according to Sprowl.

In 2002, Duke Energy acquired Westcoast Energy, a Canadian corporation which owned Chatham, Ontario-based Union Gas, which had taken ownership of Texas Eastern several years before. The current asset holder Spectra Energy was formed in late 2006 from the spin-off from Duke Energy. Spectra now owns the original Texas Eastern Transmission system along with several of the parent pipeline’s complementary strategic growth aspirations of serving other emerging distribution needs in the U.S. (i.e., Algonquin Gas Transmission).

State of the Pipe

Today, Texas Eastern ranks #3 in the PointLogic Energy top 100 interstate systems with more than 9,000 miles of pipe and offers storage services on roughly 74 combined billion cubic feet of cavern space across multiple strategic locations. Operating revenue in 2014 topped $1 billion for the first time ever and marked an almost 25% growth rate over the last five years.

TETCO’s traditional pipeline grid framework is made up of the four original producing area feeder lines, or “Access Zones,” of East Texas (ETX), South Texas (STX), West Louisiana (WLA), and East Louisiana (ELA). It also owns and operates the mainline “Market Zones” moving southwest to northeast of M-1, M-2 & M-3.

TETCO System Map Market Areas & Access Zones

System Map Market Areas and Access Zones. Source: TETCO*

The company’s current challenges are similar to every other traditional T-pipe and can be summarized as continually mobilizing and facilitating the effort to effectively monetize the rapidly changing production basins (Marcellus and Utica) as well as the somewhat lagging emerging markets or demand centers (industrial buildout & LNG exports).

Pipeline Backhaul Logistics

The flip-flopping dynamics of the relatively newly formed supply and still developing demand centers on the pipeline infrastructure has necessitated that the existing network become more accommodating with gas flows and/or customer needs throughout various times of the year. 

As a result TETCO, along with several of the other older blueblood, long haul pipes, has undertaken several projects focusing on backhaul structure. The pipeline is scheduled to be able to move 2 bcf/d to Gulf Coast and Midwest markets via bidirectional flows by 2017, while retaining full capacity to deliver to Northeast markets when needed.

Achieving these bi-directional flows requires that the existing compressor stations along the pipeline to be modified with valves and piping that will enable the option of compressing gas north or south of the existing compressor units. Once pipelines become fully bi-directional, market arbitrage forces will command the guidance of flows at these flexible locations. 

TETCO just over the past year or so has finally begun to see the initial benefits from these backhaul projects. The sense of scale of altered flows can be seen in the chart below, a 5-year window of throughput data for gas leaving Louisiana on TETCO and heading north into the M-1 market area. Since September 2014, every month except February 2015 (heart of the North American winter) has had flows reversed – that is, flowing north to south.

PointLogicThroughput Louisiana North

Source: PointLogic Energy

The Gulf Coast region for decades had supplied a vast majority of the supply for this pipeline, but as production in the Northeast continued to mature, TETCO adapted. It is no coincidence that the timing of the reversal was timed perfectly with the completion of the TEAM South Expansion, which went into service in September 2014.     

While the sample is still small, in the first week of November 2015 daily north-to-south volumes into Louisiana are topping 600 MMcf/d as flexibility continues to pick up. The supply sources are associated with points in both Pennsylvania and Ohio (Marcellus and Utica basins), as represented in the chart below.

TETCO Northeast Supply Receipts

Source: PointLogic Energy

PointLogic scrapes indicate a 50% growth rate over the past 12 months, as volumes increased by more than 1.1 Bcf/d. Specifically, deliveries into TETCO grew by more than 62% from Pennsylvania and, incredibly, more than 200% from Ohio. Much of these “new” receipts can’t be classified as new production because of displacements (and the known backlog of well completions in this region is significant).

While this aforementioned growth has been significant over the past year, there is some evidence of leveling off at least regionally; West Virginia deliveries into TETCO peaked in July 2015 at 774 MMcf/d and since then have dropped more than 12%, or roughly 10% on an annual basis.

Current Difficulties in Moving Gas

Despite the mostly timely completion of the recent projects, Texas Eastern remains in a somewhat constant state of operational upheaval. The company is one of the industry’s leaders for capacity issues and continuous shipping restrictions.

The daily list of capacity issues can be somewhat overwhelming at first. But taking a visual approach to the compressor station data gives a better idea of the current dynamics. Below is a recent view of that information. The capacity and respective flow data for each detailed point remain in constant flux, based upon flowing molecules either north or south. 

For the most part, the primary physical limitations begin and end with the Berne compressor in eastern Ohio. However, moving just to the south of Berne, it becomes apparent that Owingsville, Ky., is bumping up against backflow capacity available as well.

TETCO Capacity Throughput Map

Capacity Throughput Map. Source: TETCO*

Despite the several locations with physical limitations, the section of primary concern is the Northeast, which keeps local production out of the New England market – and this is why producers look for markets to the south instead. This, ultimately, forces the near-daily issues with the Berne Compressor Station in eastern Ohio. The chart below details a recent view of the compressor stations that Texas Eastern displays as relevant (moving west to east) in the Berne to Perulack, Pa., region above. 

Berne to Perulack Regional View

Source: PointLogic Energy

The Berne compressor area is the primary location where the 24-inch line meets up with the mainline before moving east into the market area.

TETCO Regional Capacity Throughput Map

Regional Capacity Throughput Map. Source: TETCO*

The displaceable capacity available at this location was recently increased and almost entirely consumed with the Uniontown to Gas City (PEPL) Expansion. This is evident when reviewing compressor data at the Lebanon 24-inch lateral, which prior to Sept/ 1, 2015, had zero capacity available moving north. As of early November, it is reflected as exactly the project capacity volume of 425 MMcf/d (see above). That particular project involved modifications at nine existing compressor stations and new 20" diameter crossover piping in the vicinity of Texas Eastern's Five Points Compressor Station. Capacity at Five Points and several others has not changed, but the modifications allowed additional volumes to flow north to south.

Additional continuous restrictions occur pretty much all along the TETCO mainline of moving molecules north to south, beginning at Wheelersburg Compressor Station in southern Ohio; Tompkinsville Compressor Station in southern Kentucky; and Barton Compressor Station in Alabama, with restrictions cutting into secondary out-of-path capacity.

We are at a point and time seasonally when minimal load in the Northeast is forcing a significant amount of gas to the South, and perhaps we will see additional relief soon. However, stay tuned as we continue to watch all contributing factors to the overall supply and demand picture on Texas Eastern -- which will dictate what, when, where and how much gas will flow.

In the next few weeks, PointLogic will be bringing into view for its clients all of the relevant fundamental data, as well as in-depth commentary in a new weekly regional publication encompassing the entire Northeast. STAY TUNED!

*Sources from “Texas Eastern: Still Looking Good at 65” by Craig Sprowl, Coordinator, Communication Services, Spectra Energy. http://www.spectraenergy.com/about-us/history/texas-eastern/

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