A Single Pipeline's Taking U.S. Gas on a Rollercoaster RideBy
Updates on Energy Transfer’s Rover line are moving the market
Project would unleash Marcellus supply on Midwest markets
Some of this year’s biggest gyrations in U.S. natural gas prices can be chalked up to a single pipeline.
Energy Transfer Partners LP’s $4.2 billion Rover line, scheduled to begin partial service in July, will be one of the biggest links from the Marcellus and Utica shale basins in Pennsylvania, West Virginia and Ohio -- America’s most prolific gas production region -- to the Midwest and Canada. Gas futures surged to a 14-week high on May 10 after a regulatory setback prompted speculation that the project would be delayed, keeping supplies from reaching those markets.
For a gas market that’s been weighed down by a stubborn supply glut for most of 2017, the timing of the Rover pipeline is critical. An on-time startup would derail progress in whittling down the surplus, unleashing more of the fuel even as hot weather boosts demand from power plants and exports to Mexico and overseas buyers climb. A delay, meanwhile, would keep a lid on gas output from eastern U.S. shale basins.
“It’s a huge pipeline coming out of the Marcellus and Utica region and a lot of that gas is trapped there; it’s a big deal,” said Kyle Cooper, director of commodities research with IAF Advisors in Houston. The market may be “hypersensitive” to Rover regulatory filings, creating the potential for “some pretty violent moves in the market.”
Gas futures jumped 2 percent May 10 after the U.S. Federal Energy Regulatory Commission barred Energy Transfer from using horizontal drilling to construct certain segments of the Rover line, an order that came after the company was cited by Ohio regulators for numerous spills. Energy Transfer said the FERC decision hasn’t changed the project schedule. In late March, gas prices dropped after the company met a deadline to clear trees along the pipeline route.
When Rover begins full service -- estimated for November -- the pipeline will be able to deliver the equivalent of 14 percent of Appalachian output estimated for this month. The production boost will be a blow to competing producers in Canada and the U.S. Rocky Mountains, while reducing the need to ship Gulf Coast gas north, Cooper said.
While progress reports from Energy Transfer indicate the pipeline’s on schedule, it’s “hard to handicap it beyond that,” said Brandon Blossman, a managing director at Tudor Pickering Holt & Co. in Houston. There’s a greater risk of delay for the second phase of the project, Clearview Energy Partners LLC analysts led by Christine Tezak said in a note to clients dated May 11. Rover had already faced regulatory roadblocks after the developer demolished a historic house near the pipeline route in Ohio.
“It does seem like a challenge given how compressed the timeline is relative to original plans,” said Blossman. “But they have trained approximately 7,500 workers for the project, so they may be throwing enough resources to get it done on time.”
— With assistance by Catherine Traywick