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Pipeline delays seen constraining Northeast gas production through 2017

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Pipeline delays seen constraining Northeast gas production through 2017

Despitetremendous growth in Northeast natural gas production in recent years, theregion could struggle to continue to offset declining output from the rest ofthe U.S. through 2017 due to ongoing infrastructure project delays in theNortheast.

"TheNortheast production economics … are very robust and although the Northeast isvery prolific even in a low-price environment, our long-term outlook ultimatelyhinges of infrastructure development," Luke Jackson, senior energy analystin the Bentek division at S&P Global Platts, said Sept. 28 at the BenposiumEast in New York.

Infrastructuredevelopment "is the biggest constraint," he said. "That is thething to watch when we look at Northeast production going forward and reallywhat we track over all of U.S. production going forward."

Jacksonsaid that the Utica and Marcellus shales contain some of the only plays in theU.S. that can remain profitable with gas prices at or even below $2/MMBtu andthat 10 large, well-leveraged drilling companies account for 65% of the region'sproduction. Combined with impressive improvements in drilling efficiency inrecent years, Northeast natural gas production is well positioned to continueto grow.

However,real and expected infrastructure delays reflect "big, big risks,"Jeff Moore, senior energy analyst in the division at S&P Global PlattsBentek, said.

"Idon't care if the Northeast is the most prolific basin in the world. I don'tcare if you could stick a straw in the ground to get a Bcf/d of gas. It doesn'tmatter if you cannot get that gas to market. The key to that is infrastructureand there are some very real risks to infrastructure in the [Northeast] market,"he said.

Amongother delayed projects, Moore pointed to Energy Transfer Partners LP's Roverpipeline, which receivedconditional FERC approval in July but was targeted by the U.S. EPA for having inadequate wetlandand stream mitigation plans.

Whencomplete, the project could help move as much as 3.25 Bcf/d of Marcellus gas toCanadian, Gulf and Midwestern markets, but the project also consists of "hundredsand hundreds of miles of greenfield pipelines, crossing 800 bodies of water,"Moore said. "You're going to need a lot of regulatory approvals. You'regoing to need a lot of things to go right."

Basedon known approval and construction timelines, "we already know there willbe delays, which in our view, will constrain production through 2017 and into2018," Moore said.

PlattsBentek is forecasting Northeast gas production to grow by about 7.0 Bcf/dbetween 2016 and 2019 while production from the rest of the U.S. grows by about5 Bcf/d. Soaking up this additional production, Platts Bentek is forecasting 10Bcf/d to 12 Bcf/d of incremental demand growth during that three-year time frame.

S&P Global Platts andS&P Global Market Intelligence are owned by S&P Global Inc.