At the end of June 2014, BTU Analytics wrote Red Rover Part 1 detailing the impact that ET Rover would have on the various pipelines it intersects on its path from the Marcellus/Utica to Dawn. In Part 2, we want to take a closer look at these impacts in light of the October 28 news that CONSOL Energy entered a precedent agreement to be the anchor shipper for the Spectra/DTE NEXUS project at 1.5 Bcf/d and on October 30 that Energy Transfer shippers had fully subscribed to 3.25 Bcf/d project. With potentially close to 5 Bcf/d of new capacity headed from the Marcellus/Utica to the Michcon and Dawn markets, yet another natural gas supply reshuffle is in order for Michcon and Dawn which also will ripple to other Midwest markets, including Chicago.
The most impressive aspect of the recent news is that ET Rover is now fully subscribed at 3.25 Bcf/d, when in June it only had 1.2 Bcf/d of commitments out of the planned 2.2 Bcf/d of capacity. In addition, BTU Analytics’ initial view on these projects was that one project would move forward at the expense of the other, and now that does not seem to be the case.
For those not familiar, below is a map of the Spectra/DTE NEXUS project:
Source: Spectra Energy
Let’s get back to the 5 Bcf/d reshuffle in the Midwest. As demonstrated by natural gas flow dynamics, the long haul pipes serving the Northeast via the Ohio River Valley (TETCO, CGT, TGT, Tennessee, etc.) have bore the brunt of displacement due to growing Marcellus production over the last several years. See chart below of flow dynamics leaving northern Louisiana.
In 2017, when these projects are expected to go into service, it will be Midcontinent and Anadarko producers that will get their turn to compete directly against Marcellus and Utica producers. Specifically, it is Midcontinent volumes serving Midwest markets via Panhandle, ANR’s Southwest Mainline and NGPL’s Amarillo Mainline. ET Rover will directly impact ANR and Panhandle via new interconnects at Defiance, Ohio. The impact to NGPL will be from the REX Zone 3 reversal projects in combination with the recently announced Tallgrass Prairie State Pipeline at 0.4 Bcf/d and the NGPL Chicago Market Expansion at 0.45 Bcf/d. This flood of supply will put pressure on Dawn, Michcon and the Chicago market. See the map with pipes highlighted below:
Source: BTU Analytics & EIA
In terms of displacement, Panhandle flows have averaged 0.75 Bcf/d 2014 YTD at the Indiana/Ohio border. See chart below.
According to a recent Union Gas deck, the Dawn market is between 4 Bcf/d and 6 Bcf/d, while the Michigan market averages between 1 Bcf/d and 2 Bcf/d depending on the season. Meanwhile, the Chicago market averaged 3.8 Bcf/d in winter 2013-2014. See chart below.
So if the major Midwest and Dawn markets are roughly 12 Bcf/d as measured by winter volume (Dawn at 6 Bcf/d, 2 Bcf/d for Michigan and Chicago at 4 Bcf/d) how can 5 Bcf/d of new supply be absorbed year round? Ask the former long haul shippers from the Southeast/Gulf to the Northeast how this plays out (The Battle for Henry Hub). BTU Analytics expects the most displacement to occur on Panhandle, currently flowing at 0.75 Bcf/d at the IN/OH border, on NGPL, where 2.1 Bcf/d is delivered into Chicago and the 0.5 Bcf/d and 0.35 Bcf/d respectively on Trunkline and ANR going into the Michigan market (all volumes 2014 YTD).