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Marcellus production boosts prominence, liquidity of budding Northeast markets

By Samantha Santa Maria, Leticia Vasquez in Houston

September 27, 2012 - The continued growth of Marcellus Shale gas production is bringing two Northeast pricing hubs — Millennium Pipeline, East receipts, and Texas Eastern Transmission zone M-2 — to the forefront as these new supplies seek alternative transportation options. (See related chart: Tetco M-2 production receipts: 2009-2012).

"These are two markets whose times have finally come, and they really have Marcellus to thank for it," a Northeast trader said.

The former includes receipts into Millennium downstream of the Corning compressor station in Steuben County, New York, and upstream of the Ramapo interconnection with Algonquin Gas Transmission in Rockland County, New York.

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The latter market includes receipts into Texas Eastern on its 24-inch- and 30-inch-diameter lines in the pipeline's Market Zone 2, which extends on the 24-inch line from the Illinois-Indiana state line to the suction side of the Bern compressor station in Lewisville, Ohio — and on the 30-inch-diameter line from the Tennessee-Kentucky state line to the suction side of the Delmont station in Westmoreland County, Pennsylvania, and to the discharge side of Station Site No. 22 in southwestern Pennsylvania.

Millennium — a pipeline that was first proposed in 1997 but didn't begin service until a decade later due to various permitting issues and environmental opposition — has seen its flows get a jump-start, largely due to dry-gas production out of northern Pennsylvania. (See related chart: Millennium Pipeline flows: 2009-2012).

"There was a time, before last year, if you had to do Millennium spot, you'd really feel as if you were the ugliest girl at the party," the trader said. "No one wanted to dance with you. Now, while you're not exactly Miss Popularity, you definitely have a few names on your dance card."

Average daily receipts stood at 133,516 Mcf/d in 2009, but shot up to 366,780 Mcf/d on average last year. Year-to-date, average flows are 728,877 Mcf/d, according Platts unit Bentek Energy.

Flow data shows receipts have been greatest at the Stagecoach receipt point in Tioga County.

Flows at the meter averaged 35,730 Mcf/d in 2009, jumped last year to an average of 312,141 Mcf/d and are coming in at a year-to-date average of 596,932 Mcf/d, Bentek data showed.

The 26.25-Bcf Stagecoach storage facility is also connected to Tennessee Gas Pipeline's 300 line, which runs through northern Pennsylvania and is often constrained due to continually growing Marcellus production.

Additionally, in September the 550,000 Mcf/d Marc I Pipeline is expected to go into service.

This 39-mile pipe would allow shippers to transport gas bidirectionally between Millennium and Transcontinental Gas Pipe Line's Leidy Line and all points in between.

Trader sources were divided as to the impact of Marc I, with some saying it would allow gas to move off Tennessee's 300 line and Millennium and onto Transco-Leidy, while others said the enhanced capacity would just signal to producers to turn on their uncompleted wells and unleash latent supply.

Deliveries on Millennium have also seen a dramatic uptick, going from an average of 160,063 Mcf/d in 2009 to 382,647 Mcf/d on average last year and 691,575 Mcf/d for the year-to-date.

The leading delivery point is the Ramapo interconnect with Algonquin, where flows have gone from 151,961 Mcf/d on average in 2009 to 321,030 Mcf/d on last year and 468,368 Mcf/d year-to-date.

The surges in flow starting in 2011 coincide with intense drilling activity in the Marcellus that sent Northeast production from about 4 Bcf/d in 2010 to a little more than 7 Bcf/d by the end of 2011, according to Bentek.

Meanwhile, this influx of gas has pressured Millennium East's pricing point. Spot gas prices hit close to $2.71/MMBtu September 20, an 18% drop from the highest price recorded at the point since IntercontinentalExchange added the point last December.

Traded volumes have fluctuated as well, with as much as 103,300 Mcf changing hands June 28. Volumes fell as low as 300 Mcf April 23.

Texas Eastern zone M-2, meanwhile, is an unfolding story around wet gas production. RigData figures show a sharp drop-off in dry-gas drilling in the Marcellus, particularly in the second quarter of this year, when the NYMEX hit a 10-year low below the $2/MMBtu mark.

Instead, producers shifted their rigs to southwestern Pennsylvania, where pockets of liquids-rich gas are found.

Production receipts into M-2 went from 85,570 Mcf/d on average in 2009 to a year-to-date average of about 500,000 Mcf/d, Bentek data shows.

Receipts saw the most significant upticks from the Gosney Hill Road point in Marshall County, West Virginia, and NiSource Midstream Services' Dry Ridge point in Greene County, Pennsylvania.

Both points are either located in liquids-rich counties or close to processing plants that are currently dealing with high-Btu supplies.

Next page: Substantial increase in M-2 traded gas volumes

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