Shifting Gas Sources in the Southeast – Atlantic Sunrise

September 30, 2016

The Southeast Region, with over 20 interstate pipeline systems (and 26 projects in various permitting stages) largely transporting gas from the Southwest, or Texas, Louisiana and the Gulf of Mexico, is primed to benefit from new natural gas transmission development. With expansive greenfield natural gas pipelines and major liquefaction terminals undergoing federal review, the region is slated to see approximately 14,912 MMcfd of additional capacity estimated to come online by the end of 2017. But is the region overly saturated? Will pipelines operators still have the opportunity to collect revenues?

One of the most discussed project in the region, the Atlantic Sunrise Project, which has encountered delays, aims to provide natural gas capacity from the Northeast, specifically Pennsylvania, to the Southeast. Upon filing the application, Atlantic Sunrise Project, a Williams Partners’ effort that is fully contracted by nine anchor shippers, including several common players in the region (e.g., WGL, MMGS, Southwestern), requested that the FERC issue it’s Certificate approving the Project by April 29, 2016. The Commission, however, has provided that it intends to complete it’s environmental review by October 21, 2016, indicating that the original requested FERC decision date, and perhaps the  construction schedule, is no more. And with 12 pending permits, it is no surprise that Williams delayed the  Project’s in-service date to “late 2017” from its initial “July 2017” estimate. So what? This means that the 1.7 Bcf/d of capacity from the Marcellus will not be available, as initially expected. (Back in March 2015, our statistical model for Atlantic Sunrise showed a median in-service date of  November 2017.)

While Atlantic Sunrise is experiencing  delays, smaller projects such as Texas Eastern Transmission’s Gulf Markets Expansion Project expects to bring gas to market earlier than initially estimated. In Texas Eastern’s application, it estimated that Phase 1 of the Gulf Markets Expansion Project would be in-service on November 1, 2016. Texas Eastern’s proposed expansion of its existing system, particularly the addition of a receipt point in Market Zone 2, will primarily enhance access to supplies from the Marcellus and Utica production areas by providing 350,000 Dth/d of additional capacity.

Company Estimated In-Service Date Error

Texas Eastern’s recent in-service request, however, did not aim to place all of the Phase 1 facilities in-service. In particular, Texas Eastern withheld requesting to place in-service the facilities at the Mt. Pleasant Compressor Station. Requests to initiate service earlier than initially anticipated by a company are somewhat commonplace. Based on an analysis of LawIQ’s data, the “lateness” in late projects tends to be far greater than the “earliness” of early projects. And when a project is, in fact, early, it’s typically not more than one-month before it’s estimated in-service date. Matters can be further complicated by the  timeframe between a project being placed in service and the  pipeline operator  ramping up service on it’s new facilities.

But placing a project in-service early is not simply a matter of filing a request with the FERC to initiate service. Natural gas pipeline operators must be prepared to file updates to tariffs and any relevant agreements in a rate proceeding prior to the Project’s in-service date. Perhaps as importantly, tariff updates offer a window into the going rates in a particular region, generally, or between select receipt and delivery points, more specifically. For example, the Gulf Market Expansion Project is being supported by  negotiated rates, and the agreement indicates the rate that the shippers–EQT, Range Resources, MMGS, GDF, and Mitsubishi–will be paying. These shippers will be able to take advantage of the “Early Service Facilities” offered as early as October 1 and a negotiated rate of $7.9083 per Dth, per month, or $0.2600 per Dth per day. If you’re looking to determine the negotiated rates for Atlantic Sunrise or other similar projects, then Gulf Market’s offers at least a starting point.

Reservation rates, which are available on the Profile page for each ongoing natural gas pipeline project, can help gauge the impact of delays or early in-service scenarios.

Southeastern Gas Pipeline Firm Transportation Commitments