A Popular U.S. Gas Bet’s at Risk of Crumbling on Pipeline Logjamby
Possible delays looming over $7.6 billion in shale gas lines
Gas prices for 2018 may surge as projects face setbacks
Potential delays looming over three major U.S. natural gas pipeline projects are threatening to sour a popular wager on the fuel.
Gas for delivery in April 2018 is trading at a steep discount to the March contract, signaling that traders anticipate ample supplies at the end of next winter. The spread, known as the “widow maker” for its volatility, could end up swinging to a premium if new lines designed to shuttle the fuel from shale basins in Pennsylvania, Ohio, and West Virginia to markets don’t start up on time.
Plans for a vast expansion of pipelines to deliver low-cost gas from the Marcellus and Utica reservoirs are facing setbacks amid lengthy reviews from regulators and heightened opposition from environmental groups. The possible delays threaten to prolong the bottlenecks that helped push drilling for the fuel to historic lows last year, leaving the market at risk of price spikes.
“Traders could be in for a surprise because the market could be quite short of gas supplies,” Het Shah, an analyst with Bloomberg New Energy Finance, said by phone. “We’re not really sure what the timeline is due to delays” in regulatory approvals for some of the projects.
TransCanada Corp.’s $1.4 billion Leach XPress pipeline, Energy Transfer Partners LP’s $4.2 billion Rover gas line, and Spectra Energy Corp. and DTE Energy Co.’s $2 billion Nexus project, all scheduled to start this year, could miss deadlines, Teri Viswanath, managing director for natural gas at PIRA Energy Group in New York, said by phone.
Together, the links have enough capacity to deliver 6.25 billion cubic feet per day of gas. That’s enough of the fuel to serve about 100,000 homes annually, based on Energy Information Administration estimates.
Delays for the projects could mean that gas for delivery next April is due for an upward correction of about 20 cents per million British thermal units from about $2.90 per million Thursday, Shah said.
Bank of America is targeting gas prices at $3.50 per million for 2018 in anticipation of pipeline delays, Francisco Blanch, the head of commodities research at Bank of America Corp., said by phone Wednesday.
Rover faces roadblocks after the developer tore down a historic house near the project’s route in Ohio. While Dallas-based Energy Transfer planned to start construction in the third quarter of 2016, it’s still awaiting a permit from federal regulators. Rover remains on course to start up by mid-2017, with no changes to the schedule, Vicki Granado, a company spokeswoman, said by e-mail.
Energy Transfer could meet its schedule to place a part of the Rover pipeline into service by the end of this year if a permit is issued in January and construction is accelerated, Anthony Yuen, an analyst at Citigroup Inc. in New York, said in a note to clients Wednesday.
“Depending on when the project receives its final certificate, delays to in-service are likely,” Yuen said.
The Leach XPress cleared federal review from the Federal Energy Regulatory Commission, but the U.S. Environmental Protection Agency has said a more thorough assessment of the project’s possible impact on climate change was warranted. Scott Castleman, a spokesman for TransCanada, said in an e-mail that there are no changes to the timeline for Leach XPress, and a federal permit is expected soon.
The Nexus line, which would serve markets in Ohio, Michigan, Illinois and Ontario, Canada, "has consistently met its regulatory milestones" and is due to start in the fourth quarter of 2017, Adam Parker, a spokesman for project developer Spectra, said by e-mail.
Delays to the three projects could leave less gas in storage at the end of the winter than traders are expecting, pressuring prices higher, Pira’s Viswanath said.
“We could end up with lower inventories or we could end up with a lack of new midstream projects, which both result in a market that’s tighter than anticipated and not something that’s being captured in the widow maker,” she said.