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Pipeline company suspends project to connect Appalachian shale natural gas wells to Gulf Coast

| Monday, April 28, 2014, 12:57 p.m.

Williams said on Monday that it suspended its plans to build a pipeline from the Appalachian shale gas fields to the Gulf Coast because of weak demand from drillers.

Insufficient pipeline infrastructure has been a persistent challenge for shale gas drillers, but the Tulsa-based energy company indicated its decision didn't reflect a changing outlook for the industry. The Bluegrass Pipeline got “an insufficient level of firm customer commitments,” it said.

“While data show there will soon be a need for a large-scale solution like Bluegrass Pipeline to meet market needs, potential customers to-date have so far chosen to focus on local solutions,” the company said in a letter to supporters on bluegrasspipeline.com.

The move makes sense in a market flooded with cheap gas, numerous pipeline proposals and uncertainty over where companies will build so-called ethane cracker plants to process gas and liquids, said Kent Moors, an expert on the oil and gas industry.

“It's a normal consequence of having a huge change in the energy landscape and coordinating all that infrastructure. There's going to be ... some hiccups,” said Moors, executive chair of the Global Energy Symposium at the World Affairs Council of Pittsburgh and founder of Oil and Energy Investor.

The drilling industry has made progress solving its infrastructure problems and getting more wells connected to pipelines. But pipeline companies need commitments before making big investments on projects to carry liquids across the country. They also are wary of falling prices and the pressures from flooding the market with more gas.

At $5.81 per thousand cubic feet, the price of gas pipeline exports in January was less than half what companies fetched in July 2008, according to the U.S. Energy Information Administration. Facilities approved for liquefied natural gas exports won't be ready for at least 18 months.

Moors said it's no time to panic.

The EIA predicts natural gas liquids production to hit all-time highs in 2016. Gas production is booming in the Appalachian basin and will increase this year through 2020, analyst ICF International said last week. ICF said increased demand for liquid products such as ethane and propane will boost gas prices in a few years.

Such predictions drove a series of planned projects to move liquids such as Bluegrass, Sunoco Logistics Partners' proposed Mariner East and Mariner East 2 pipelines to Philadelphia and Enterprise Products' ATEX pipeline to Texas, which began moving ethane in January. They all target the wet-gas regions of the Marcellus and Utica shale in Pennsylvania, Ohio and West Virginia.

Spokesmen for Sunoco and Enterprise could not be reached.

Producers clamored last year for ways to ship out those valuable liquid gases. Some companies built or are planning rail lines that can move LNG in tankers without expensive pipelines that take years to build. Rail transportation also provides producers more flexibility than pipelines in moving supplies if markets or prices shift.

But producers might be more focused on pipes and lines that get gas into storage and to power generators after a cold winter, Moors said.

“Most of the (natural gas liquids) pipelines may be premature. We might need them, but not now,” he said.

Whether Royal Dutch Shell decides to build a petrochemical plant in Beaver County or whether other companies build on the Gulf Coast will influence where the pipelines run, Moors said. Shell won't decide on building its plant in Potter and Center for at least a year. But last year it got commitments for ethane from Consol Energy and others. The project manager said he'd like to have more ethane stay in Western Pennsylvania.

The Bluegrass project showed signs of trouble. CEO Alan Armstrong in February said the company was delaying its expected completion date from next year until 2016 “to better align with the needs of producers.”

It ran into some resistance from landowners in Kentucky opposed to the pipeline. Williams said opposition and eminent domain issues did not contribute to its decision.

Spokesman Tom Droege said the project is in a land acquisition phase and had not sought permits from regulators. The company said it could exercise land options if it restarts the project before agreements expire over the next three years.

David Conti is a staff writer for Trib Total Media. He can be reached at 412-388-5802 or dconti@tribweb.com.

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