Perhaps one of the most significant energy stories of the year.
Platts reports that the owners of the Rockies Express Pipeline (REX) are doing an about-face.
REX was originally designed to carry natural gas eastward. From producing areas as far west as Colorado, to high-value gas markets in the eastern U.S.
But now there's a problem. The eastern U.S. has too much gas.
Production in eastern shale basins is surging. As plays like the Marcellus and Utica come on (the rig count in the latter doubled during 2012).
In fact, the American Northeast/Midwest is the only section of the country where production is still growing. Gas output there is 4 billion cubic feet per-day higher than a year ago. By contrast, production from the Southeast/Texas/Mid-Continent zone is down over 2 bcf/d year-on-year. The Northwest/Southwest/Rockies segment is also down, about 1 bcf/d lower than last year.
Overall, northeast production has gone from 7 bcf/d to 12.5 bcf/d over the last 18 months. Leaving producers looking for somewhere to sell their supply.
So the REX pipeline owners have inked a first-of-a-kind deal. An unnamed Utica shale producer is going to pay the pipeline to ship gas west rather than east, out of Ohio.
With formerly sought-after northeast buyers now saturated, the producer is reportedly looking to sell gas toward the Chicago market. Which is unwelcome news for the other player that sells a lot of gas in the American Midwest: Canada.
Pipeline infrastructure in western Canada's producing basins points squarely at Chicago. Nearly 80% of Canadian natgas exports to the U.S. enter through Idaho, Montana, North Dakota and Minnesota.
But it looks as if Canadian exporters will now be competing with rapidly-growing northeast U.S. production. Which could further depress already-low Canadian prices.
We're already seeing this impact the market. Canada's gas exports to America in 2012 were the lowest since 1997. Much of the fall has happened at intake points in the eastern States. And demand at those centres is continuing to drop in 2013.
If you're planning to sell gas to America, there are fewer and fewer go-to buyers left.
Here's to knowing where your market is,
By. Dave Forest
A 24%/year decline rate from existing wells implies that in order to maintain a dry gas production rate of 66 BCF/day, the industry has to replace about 100% of current production over the next four years.
Or, over a 10 year period, a 24%/year decline suggests that the industry, in order to maintain current production, would have to put on line the equivalent of the peak production rate of 30 Barnett Shale plays.