(November 7, 2014) The Battle for Henry Hub, Part 2 – Energy Metro Desk [Vol 6, Issue 21, Pg 14]
Five years ago we ran a series of interviews with Rusty Braziel – then the Bentek managing director – about a massive new study his team had just produced on the deep impact of the opening of the REX pipeline and with it, Rockies gas flooding the East. The analysis called for basis markets blowing out all over the place and Henry Hub prices being crushed. Flows reversing. He was right on all counts. This week Braziel, now master of consulting firm RBN Energy, has produced another study on the relative impact of huge amounts of Marcellus-based shale gas flooding Henry Hub. He describes it as the “most radical realignment of gas flow patterns since just after World War II.”
The new 65-page report, “Battle for Henry Hub,” presents the current market situation as paralleling the Battle of the Rockies gas, back in the day. This time, however, it’s Northeast gas versus the western shale basins. “With supply pouring into the Louisiana market from the east and west, the only possibility to prevent the development of a massive supply glut would be a corresponding increase in demand or dramatic reduction in oil prices below $70 per barrel. The largest demand sector, residential/commercial demand, has been flat for years due to the combined effect of efficiency and conservation gains. Thetis unlikely to change. Thus, any increase in demand will need to come from some combination of the industrial sector, the power sector and the nascent natural gas
(LNG) export market …”So, at the moment, we see a whole lot of gas with no place to go. “That was the basic exercise for this new report,” Braziel says, “figuring that out.”
He says this time around, the battle for market share will be a bit more intense. “We’ve done the break-evens for companies in northeastern Pennsylvania. These guys can make money at $2.50.Further west, when you consider liquids prices, they can make money at $2. And, in the Bakken, they’re flaring the stuff. This is a completely new situation in terms of market dynamics,” Braziel says.
The report itself follows two basic paths, a high-demand scenario and a low-demand scenario. In the high demand case, the report says that once we get out to 2017-2018, and assuming all sorts of new industrial facilities, a lot more gas-fired generation coming on line plus new demand from all the new export facilities scheduled to be operational, the market should be in balance.
