Barnett Shale transportation capacity largely in place

Energy Transfer recently completed work on its 56-mi, 36-in. Katy Expansion pipeline project, designed to enhance transportation service out of the Barnett Shale and Bossier Sands natural gas plays in Texas.

Over the past few years, pipeline companies have been busy building hundreds of miles of transmission and gathering systems to move gas produced from the Barnett Shale to markets in the eastern, Midwestern, and southeastern United States.

Many of the new pipeline systems have been built in the Upper Gulf Coast region, in northeast Texas and northwest Louisiana (see Barnett Shale – Natural Gas Infrastructure map). As these pipeline systems have been placed in service, both production and processing facilities have ramped up as well (see Barnett Shale – Natural Gas Capacity Data).

This review highlights recent additions to the region’s takeaway capacity, and examines proposals for new pipelines being built and planned.
­Enbridge Energy Partners is one of the key players in this market, and its East Texas natural gas pipeline is one of the key transportation systems in the region. It recently completed work on a $530-million expansion project that involved the construction of a 192-mi, 36-in. pipeline from Bethel to Orange County; and a 60-mi, 24-in. pipeline from Crockett to Franklin County. The project also included the construction of a number of upstream facilities, including gathering pipelines that will tie existing facilities into the new intrastate pipeline. To process the gas, a new plant was built near Marquez, in Franklin County.

Crosstex Energy is another key player in the region, and it has also added to the available Barnett Shale takeaway capacity in recent years. One of the key additions to the Crosstex network is the North Texas pipeline, a 140-mi, 24-in. pipeline spans six North Texas counties to gather and transport gas out of the Barnett Shale. The company invested approximately $115 million in the project, which now delivers Barnett Shale gas to major distributors like Coserv Energy and Atmos Energy for sale to local consumer and business markets. Delivery points are planned for Natural Gas Pipeline Co. of America and Houston Pipe Line Co., which serve other markets in Texas as well as throughout the United States. This line has the capacity to deliver 375 MMcfd.

Other recently installed systems have also boosted takeaway capacity for Barnett Shale producers. One of these is CenterPoint Energy’s $425-million Carthage-to-Perryville natural gas pipeline. Completed in 2007, this pipeline now provides market access for production from East Texas and north Louisiana through interconnects with interstate and intrastate pipelines serving the East Coast, Midwest and Southeast U.S. markets. The line runs with 172 miles of 42-in. pipe to move gas from Carthage, Texas, to the company’s Perryville hub in northeast Louisiana. In April 2009, the FERC authorized CenterPoint to boost the capacity of the Carthage-to-Perryville pipeline to approximately 1.9 Bcfd by building two turbine compressor units at the company’s Westdale and Vernon compressor stations in Red River and Jackson Parishes, Louisiana. This phase is projected to be placed in service in the second quarter of 2010.

There is also the Southeast Supply Header, completed by a CenterPoint Energy/Spectra Energy venture in 2008. It connects the Carthage-to-Perryville pipeline with southeastern markets. Often referred to by its acronym, the SESH involved the construction of a 270-mi, 36 and 42-in. gas pipeline from the Perryville hub in Louisiana to the Gulfstream Natural Gas System near southern Mobile County, Alabama. The Southeast Supply Header now links gas supply from East Texas and north Louisiana basins to growing U.S. southeast and northeast markets.

Energy Transfer has also been adding significant take-away capacity for Barnett Shale producers, spending at least $1.85 billion in recent years to help them get their gas to market. These efforts have included the construction of a 265-mi, 42 and 30-in. pipeline which connects the partnership’s ET fuel system with its HPL system, running from Cleburne, Texas, in Johnson County to a point near Reed, Texas, in central Freestone County; and from there to the Texoma pipeline at the Carthage, Texas, hub. Since placing that line in service, Energy Transfer has extended and expanded the system with 157 miles of 42-in. pipeline and 132,700 in additional compressor horsepower. The extension now provides natural gas service from Limestone County, running in a southeasterly direction to interconnect with the 30-in. Texoma system in Hardin County, Texas, northeast of Beaumont. Interconnects with several interstate pipelines are being planned.

And, Energy Transfer has continued to add take-away capacity. In 2009, the partnership announced the completion of its $485-million natural Texas Independence Pipeline. This new 160-mi, 42-in. natural gas pipeline increases Energy Transfer’s takeaway capacity in Texas by an incremental 1.1 Bcfd, and serves the Bossier and Barnett Shale natural gas resource plays in east and north central Texas. Originating just west of Maypearl, Texas, and ending near Henderson, Texas, the new system connects the partnership’s existing central and north Texas infrastructure to its east Texas pipeline network. With the addition of compression, the project may be expanded to transport natural gas volumes in excess of 1.75 Bcfd.

Energy Transfer has also announced the completion of the 56-mi, 36-in. Katy Expansion project, which increased the capacity of the partnership’s existing ETC Katy natural gas pipeline in southeast Texas by more than 400 MMcfd. The expansion project also provided approximately 20,000 horsepower of compression to the 30-in. section of the ETC Katy pipeline, which extends from the partnership’s Grimes County compressor station to the Katy natural gas trading hub. The project increases the capacity of the pipeline from 700 MMcfd to more than 1.1 Bcfd, enhancing transportation service out of the Barnett Shale and Bossier Sands natural gas plays in Texas.

Elsewhere in the region, Falcon Gas Storage Co. has also added takeaway capacity for Barnett Shale producers. It did so most notably with the completion of a 63-mi, 24-in. gas pipeline that serves the company’s Worsham-Steed gas storage facility, located in the western portion of the Barnett Shale gas play in North Texas. The pipeline runs southward from the Worsham-Steed facility through Jack, Parker and Hood counties, where it interconnects with a number of existing gas transmission pipelines, including the North Texas pipeline, jointly owned by Enterprise Products Partners and Energy Transfer Partners, and the Atmos Energy Line “X” pipeline.

Kinder Morgan has also added takeaway capacity in the region with the completion of a $69-million project designed to increase capacity on Natural Gas Pipeline Company of America’s (NGPL) Gulf Coast and Louisiana mainlines. The project added some 31,000 horsepower in compression and also included three miles of 36-in. looping. The scope of work also included a reconfiguring of NGPL’s compressor station 304 on the Gulf Coast mainline in Harrison County, Texas, to allow the flow of natural gas southward into the Louisiana line. The project was designed to provide takeaway capacity for the Barnett Shale and Fayetteville Shale fields, and enhance the ability of shippers to reach markets along the East Coast.

Other recent additions

Crosstex Energy has added to the available Barnett Shale takeaway capacity with the completion of its North Texas pipeline project

Boardwalk Pipeline Partners has also added significant takeaway capacity for Barnett Shale producers in recent years. Its subsidiary, Gulf South Pipeline Co., has completed work on the $1.1-billion Gulf Crossing project, which involved the construction of a 355-mi, 42-in. interstate gas pipeline to move gas from Sherman, Texas, to the Perryville, Louisiana, area. This project was completed in 2008. Boardwalk has also completed work on the $330-million Southeast expansion project, which expanded transmission capacity on the Gulf South pipeline system between Harrisville, Mississippi, to Choctaw County, Alabama. This project, which was placed in service in February, added 111 miles of 42-in. pipe to the Gulf South system.

Elsewhere, Enterprise Products Partners and Duncan Energy Partners report that construction has been completed on the 174-mi, 36-in. Sherman Extension pipeline. This project expanded the Enterprise Texas Intrastate natural gas pipeline system, which extends through the heart of the Barnett Shale play of North Texas. The Sherman Extension begins at a delivery point on the partnership’s Texas Intrastate natural gas pipeline system near Morgan Mill, Texas, southwest of Fort Worth, and extends northward to an interconnect with Boardwalk Pipeline Partners’ Gulf Crossing pipeline near Sherman, Texas. Completed in March, the initial throughput on the Sherman Extension was approximately 360 MMcfd before ramping up to about 950 MMcfd over the summer. The capacity was expanded as the remainder of the system’s 48,000 horsepower of compression was brought online.

The developers say that the completion of the Sherman Extension adds 1.1 Bcfd of incremental takeaway capacity from the region, while providing Barnett Shale producers with greater flexibility in accessing the most attractive markets, particularly those in the Northeast and Southeast areas of the country. Current natural gas production from the Barnett Shale is approximately 4 Bcfd and is projected to surpass 6 Bcfd by 2011. “Since we first announced this initiative a little more than two years ago, the production performance of the Barnett Shale has continued to exceed expectations,” said Michael A. Creel, Enterprise president and chief executive officer. “Highlighted by the fact that there are currently more than 350 completed wells awaiting pipeline connections, the need for midstream infrastructure like the Sherman Extension has never been greater.”

The Sherman Extension also laid the foundation for a separate but complementary project that the developers are planning to support emerging new areas of the Barnett Shale that are not adequately served by pipelines at present. In particular, the partnerships are in the process of constructing a new 40-mi, 30 and 36-in. pipeline that will link producers in the Trinity River Basin to the Sherman Extension near Justin, Texas. This new pipeline will originate in Tarrant County, Texas, and have a capacity of 1 Bcfd. And, the developers say that like the Sherman Extension project, this new pipeline is supported by long-term transportation agreements with major producers. The Trinity River lateral is on track to begin service in late 2009 or early 2010.

Leveraging existing assets
Some production companies are leveraging their existing Barnett Shale pipeline assets to raise funds for other operations. One example is Oklahoma City-based Chesapeake Energy, which recently announced that it will raise $588 million in cash by selling half its natural gas pipelines in the Barnett Shale play, as well as properties in other petroleum basins.

Chesapeake, a major Barnett gas producer, says it has entered into a definitive agreement to form a joint venture with Global Infrastructure Partners, a New York-based private equity fund. According to the Fort Worth Star Telegram, Chesapeake will contribute its Barnett Shale pipelines and processing facilities to the new Chesapeake Midstream Partners (CMP) venture. Global Infrastructure Partners will pay $588 million for its 50% interest in CMP, and Chesapeake will retain the other half. The deal was not a major surprise, since Chesapeake had said in May that it was in talks with four potential bidders for a $500-million stake in its Barnett Shale midstream properties.

Under the terms of the deal, Chesapeake will contribute substantially all of its midstream assets in the Barnett Shale as well as most of the company’s nonshale midstream assets in the Arkoma, Anadarko, Delaware and Permian basins. The deal will provide additional money for Chesapeake’s operations, which include large lease holdings in major shale gas plays including the Barnett, the Haynesville in Louisiana and the Marcellus in the Appalachian region.

Like other large independent gas producers, Chesapeake’s revenue has been reduced by a deep downturn in natural gas prices since the summer of 2008, although the company has offset the effect somewhat by hedging prices on the futures market. While natural gas prices rose above $13 per thousand cubic feet last year, they have generally been in a range of $2.50 to $4 in recent months, with a subsequent deleterious effect of on U.S. drilling activity – including the Barnett.

Major assets in place

Enbridge Energy Partners completed work a few years ago on its $530-million its East Texas expansion project, which involved 252 miles of 36 and 24-in. pipe and the construction of a new gas processing plant in Franklin County.

The sharp slowdown in Barnett Shale drilling not only means that the big natural gas field will peak earlier than expected but also that most of the major pipelines aimed at moving gas out of the field are already in place, says Barry E. Davis, president and chief executive officer of Dallas-based Crosstex Energy. Davis recently told a Fort Worth audience that producers will still need to build the smaller-diameter gathering systems to carry gas from their wells to processing plants. But “probably 80 or 90 percent of the capital spending” on big transmission lines to distant trading hubs has been done, said Davis, who made his remarks at an energy investment conference sponsored by the Texas Christian University Energy Institute.

Davis estimated that the Barnett Shale’s takeaway capacity – the amount of natural gas that pipelines can carry – stands at 5.5 to 6 Bcfd. Producer and analyst groups have estimated that production from the Barnett shale field will be 4.6 to 5 Bcfd by the end of the year – indicating that in the near term, at least, there will be excess takeaway capacity. And these levels are far short of early predictions that the field could grow to 8 or 9 Bcfd, Davis said, a level that would have required the industry to inject millions more into pipeline infrastructure. In retrospect, he said, the flattening of the Barnett’s production rate will probably result in a more effective use of those pipelines. “So now the Barnett gets to 4.5 or 5 billion Bcf,” he said, and as drilling stabilizes, “it just stays there forever.” Such projections are in line with comments from some producers in the field, who note that even if the field’s daily production does not peak as high as it might have if the drilling frenzy continued, the field will still produce at a high level for decades.