Has Nexus and Rover’s main reason to ship to Dawn disappeared?
Perhaps the main motivation to ship gas from Ohio to the Dawn hub was the huge price differential.
Please pull up this chart. http://www.ferc.gov/market-over…/…/midwest/ngas-mw-yr-pr.pdf
In 2013 and 2014, the average gas price at Chicago City Gate, MichCon and the Dawn hubs were considerably higher than at the benchmark Henry Hub and certainly higher than in Marcellus/Utica.
Pipeline companies build (and shippers fund) new pipelines in order to take advantage of these differentials. FERC approves of this. However, hub prices are much closer now throughout most of the US and Dawn.(There is reason to believe this will continue.)
A DTE Executive’s (accidental?) comment on NEXUS may have revealed this situation, “The major markets when this pipe first was put in was gone,.. (Peter Oleksiak at DTE earnings conference, 10/15/2015)http://finance.yahoo.com/…/edited-transcript-dte-earnings-c…
It appears the Dawn Hub differential is too small to financially justify Nexus or Rover’s Market Segment thru Michigan. (51% of Nexus capacity is planned for Dawn.)
Here are some highlights (and comments) from the FERC 2015 State of the Markets Report (March 17, 2016): http://www.ferc.gov/…/reports-analy…/st-mkt-ovr/2015-som.pdf
FERC implies that new gas pipelines have generally caught up with supply (FERC comments in italics).
“With the exception of the Northeast, including New England, regional price differences across the country were not large, a sign that midstream investments over the past 10 years have largely relieved natural gas transportation constraints.” (Hub prices are on slide 4)
But then they go on to say:
However, insufficient pipeline takeaway capacity in the producing regions of Ohio, West Virginia, and Pennsylvania has led to a local gas surplus in the area, resulting in lower prices for producers.
… low prices have strained many producers’ balance sheets, leading to potential credit defaults, consolidation, and lay-offs.
Could these low gas prices and financial problems be caused by overproduction and not lack of pipes?
Production growth in the Marcellus and Utica has resulted in the addition of 51 Bcfd in new pipelines in the past five years and approximately 49 Bcfd of capacity is proposed or planned to come online by 2018 to transport natural gas to markets.
Many older gas pipelines in this region have been reversed and now add additional takeaway capacity. Marcellus/Utica gas production continues to grow and is currently at 20 Bcfd http://www.eia.gov/naturalgas/weekly/…/shale_gas_201602.xlsx
But with production at 20 Bcfd and over 50 Bcfd pipeline capacity built, and an additional 49 Bcfd planned, how much Marcellus/Utica overcapacity will they approve? Then FERC says:
…. there are signals that natural gas production has plateaued and may begin to decline.
Note, FERC allows the cost of building a pipeline to be passed along to customers and at a substantial profit. This encourages overbuilding.
“Regional price differences” are a big motivation for a pipeline company to build more pipelines and ship gas to a hub where they can sell it for more money. FERC allow them to do this. With much smaller price differences at the hubs, a motivation to build more pipelines is waning. Note the gas price at hubs merging in this table: http://www.eia.gov/naturalgas/weekly/…/shale_gas_201602.xlsx