March 26, 2008

Except for some expected dips in supply as new infrastructure is connected, the news is bad for those who've traded well on the rise in gas prices.  Bentek Energy sees huge changes coming in the Gulf region's natural gas markets as 40 capital infrastructure projects are brought online through the middle of next year.
     Various firms are building 25 gas pipelines, 11 gas storage projects and four LNG terminals -- expected to shift gas flow patterns, disrupt regional pricing relationships and realign the value of transportation capacity.
     This level of industry infrastructure expansion hasn't been seen since the interstate construction boom of the late '40s and early '50s, said the energy research firm.
     Some of the new pipelines are designed to tap into the rich, non-conventional supplies in the Barnett, Woodford and Fayetteville Shale regions and Boosier Sands in East Texas, moving the gas to high-value Southeast and Northeast markets.
     Big names in the industry such as CenterPoint, Energy Transfer, Kinder Morgan and Spectra are getting involved in the build out.
     The pipeline and LNG projects represent an added capacity of 25.4 bcf/day and the new storage facilities represent 6.3 bcf/day, said Bentek Managing Director Russell Braziel.
     "But there's a catch.  In the short-term there will not be enough incremental supplies to fill the new pipeline and LNG terminal capacity," he added.  That means the pipelines will 'steal' gas from existing ones with better terms and eliminate pricing differences between fields in Texas and Southeast markets.
     All of this is going up around the Henry Hub -- the delivery point of NYMEX futures contracts and the reference point for natural gas basis.
     "We expect to see Henry buffeted by successive waves of new capacity expansions, interspersed with supply increases and the occasional influx of LNG cargos," said Braziel.
     "As a result, the natural gas market will experience significant volatility in regional price differentials."