U.S. Gas Gains on Potential Marcellus Shale Pipeline Delay

Updated on
  • Regulators limit construction drilling for Rover pipeline
  • Project would deliver gas from Marcellus, Utica shale plays

U.S. natural gas futures surged after federal regulators limited construction on a pipeline, a move that may delay new Appalachian supplies from reaching the market.

Energy Transfer Partners LP is barred from new drilling along some segments of its $4.2 billion Rover pipeline, the Federal Energy Regulatory Commission said in an order posted Wednesday. The move follows a request by Ohio regulators to review spills of drilling fluid and other environmental violations related to construction of the line. Ohio has fined Energy Transfer $431,000 for those violations.

Construction is being closely watched as Rover has the potential to unlock a new wave of supply from the largest U.S. gas producing region. The Marcellus, which saw a slowdown in drilling after prices fell to a record low last year, is displacing traditional supplies out of the Gulf Coast and putting the U.S. on track to become a net gas exporter in 2018 for the first time in decades.

“The market is really focused on the Rover expansion and the market took the order that came out earlier today in a very bullish way,” Kyle Cooper, director of research at IAF Advisors in Houston, said in a phone interview. “Reading the order, it looks like FERC is going to be in their business a lot. At a minimum it’s really going to slow down the progress.”

The order could delay the project timeline by 30 to 90 days, he said.

The initial stage of the project, which would transport gas to the Midwest, is scheduled to come online in July, with a full start up slated for November. The company said that timeline is unaffected by Wednesday’s order.

Energy Transfer sees “no change” to its construction schedule and is working with FERC and Ohio to resolve the matter, Alexis Daniel, a Dallas-based spokeswoman for the company, said in an email.

Rover will deliver as much as 3.25 billion cubic feet a day of gas from the Marcellus and Utica shales in the U.S. East. That’s 14 percent of the total 23.2 billion cubic feet of production expected out of those deposits in May, according to data from the U.S. Energy Information Administration.

See Also: More Spills Tied to Energy Transfer Line Spark Clash With Ohio

Concerns about a string of drilling fluid spills related to construction in Ohio prompted federal regulators to bar new drilling on several Rover segments. The order also requires Energy Transfer to hire a third party contractor to determine whether the company could have prevented or minimized the spills, which sent around 50,000 barrels of drilling fluid into pristine wetland areas.

Depending on the outcome of a third-party review, FERC may refer the case to its Office of Enforcement for further investigation, according to the order.

Regulators will allow Energy Transfer to continue work on its mainline, the segment most critical to meeting startup targets. That means its November in-service date is still possible, according to Bloomberg Intelligence analyst Brandon Barnes.

"Staff has serious concerns regarding the magnitude of the incident," according to the order. The volume of fluid released in Ohio wetlands was "several orders of magnitude greater" than other documented spills related to the Rover project.

The prospect of a delay added to bullish sentiment building on expectations for below-average inventory gains with warmer weather ahead. Stockpiles probably rose by 55 billion cubic feet last week, based on the median estimate of 11 analysts compiled by Bloomberg. The five-year average gain for the period is 73 billion.

Gas futures for June delivery rose 6.5 cents, or 2 percent, to $3.292 per million British thermal units on the New York Mercantile Exchange. Futures climbed to $3.349 following the FERC order, the highest intraday price since Jan. 27.

Energy Transfer rose 2.8 percent to $23.16 at 2:55 p.m. in New York.

— With assistance by Jim Polson, and Kevin Varley

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