What’s the issue?
Mountain Valley Pipeline (MVP) is currently caught in a political fight. One argument for its completion is that it will allow an increase in production from the Marcellus/Utica basin.
Why does it matter?
The problem for regional producers is that MVP only takes the gas so far, namely to an interconnect with the Transcontinental Gas Pipeline (Transco) in the state of Virginia. If that is where the gas ends, it will likely simply reduce prices in that region of the country, Virginia, North Carolina and South Carolina, unless additional projects can be completed that increase demand.
What’s our view?
Based on our analysis of the current contracts on Transco, it seems pretty clear there is no further need for that gas to flow to the Northeast, which means demand will likely need to occur within Transco Zone 5 or to the south and west. There are a few projects pending at FERC that could provide needed additional demand. Also, once MVP is completed, it is likely that other projects will be developed to use the new supply.
Mountain Valley Pipeline (MVP) is currently caught in a political fight. One argument for its completion is that it will allow an increase in production from the Marcellus/Utica basin. The problem for regional producers is that MVP only takes the gas so far, namely to an interconnect with the Transcontinental Gas Pipeline (Transco) in the state of Virginia. If that is where the gas ends, it will likely simply reduce prices in that region of the country, Virginia, North Carolina and South Carolina, unless additional projects can be completed that increase demand.
Based on our analysis of the current contracts on Transco, it seems pretty clear there is no further need for that gas to flow to the Northeast, which means demand will likely need to occur within Transco Zone 5 or to the south and west. There are a few projects pending at FERC that could provide needed additional demand. Also, once MVP is completed it is likely that other projects will be developed to use the new supply.
MVP is designed to transport 2 Bcf/day of gas from the Marcellus/Utica basin about 300 miles to Transco’s Compressor Station 165 in Transco’s Zone 5.
As seen above, Transco’s system is divided into six main zones with Zone 5 basically corresponding to the states of Virginia, North Carolina and South Carolina. The point where MVP interconnects, station 165, is just north of the North Carolina-Virginia border.
Transco was originally built to transport gas produced in and along the Gulf Coast to the demand centers in the Southeast and Northeast. However, following the exponential growth of production in the Marcellus/Utica region, this traditional transportation path is no longer the primary purpose for the pipeline.
In the figure above, we have aggregated the current receipt and delivery points for all of Transco’s contracts and sorted them into the various zones on Transco’s system. As seen above, Zone 6 is almost an equal balance of receipt and delivery points, which likely reflects the fact that all of the Northeast is now being served by production from Pennsylvania and no longer needs Gulf Coast gas. Utilities serving territories within Zone 6 represent more than two-thirds of the contracts with deliveries in Zone 6 and source more than 60% of their gas from receipt points in Zone 6.
Zones 1 through 5 show the more traditional northerly flow from the Gulf Coast with the combined receipts in Zones 1, 2 and 3 more than doubling the deliveries in those zones and Zones 4 and 5 showing just the opposite with deliveries almost doubling the receipts.
MVP was underwritten by contracts primarily with Marcellus producers, most predominantly EQT. Given the market dynamics on Transco, it is therefore not surprising that MVP was designed to hit Transco in Zone 5, where there is existing demand and where there would be less competition from gas that hits Transco in Zone 6. The tariff rate for transporting gas from Zone 1 to Zone 5 is $0.48335 Dth/day, whereas the cost for transport within Zone 5 is only $0.18671 Dth/day.
Just before MVP filed its project at FERC, a very similar project, Atlantic Coast Pipeline (ACP), was filed. ACP was underwritten by contracts with end-users, primarily electric utilities serving the states in Transco’s Zone 5. According to ACP’s original filing, it was anticipated that “approximately 79.2 percent of the natural gas transported by the ACP [would] be used as a fuel to generate electricity,” primarily by its shippers Duke Energy Progress, Duke Energy Carolinas and Virginia Power Services Energy. As most of our readers know, due to many of the same issues that have stymied MVP’s progress, ACP was actually canceled. The integrated resource plans for the two Duke companies still show an almost 50% increase in the share of electricity generated by natural gas between now and 2035, by which time coal will essentially have been eliminated as a fuel source. It is unclear how those companies have adjusted their portfolios for supply, but they most likely will represent a continuing source of demand for any gas that ultimately reaches Transco if MVP is completed.
Soon after FERC first approved the MVP project, MVP proposed a project called MVP Southgate (Southgate) that was intended to provide a demand for some of the gas being transported by the main project. Southgate would run from the terminus of the original MVP pipeline and provide 300,000 dth/day of supply to a North Carolina local gas distribution company, Public Service Company of North Carolina. Southgate is currently on hold, however, while it awaits completion of the main project. It also has encountered its own permitting issues and so there is some concern that even if the mainline is completed, Southgate may not be.
There are other projects pending at FERC that are underwritten by end users and rely on Transco supply that could provide additional demand for any gas MVP can ultimately deliver to Transco. Perhaps the one with the most direct connection to MVP is Transco’s Southside Reliability project that will provide an additional 423,400 Dth/day of firm transportation service, with 160,000 Dth/day from Transco’s existing Station 165 Zone 5 Pooling Point, the same point where MVP hits Transco, through Transco’s South Virginia Lateral to the state of North Carolina, and 263,400 Dth/day from Transco’s interconnection with the Pine Needle LNG storage facility to other locations in North Carolina. Both of these paths are to supply gas to the only shipper on the project, Piedmont Natural Gas “to support the growing energy needs of the markets that Piedmont serves.”
Transco has two other projects pending that will increase the demands on its system, but would not be directly related to the Zone 5 region. First, its Southeast Energy Connector project would provide an additional 150,000 Dth/day of firm transportation service to serve the Ernest C. Gaston Electric Generating Plant. Unit 5 at that plant is owned by Alabama Power Company, which intends to convert the plant from coal to natural gas. Second, the Regional Energy Access project will enable Transco to provide an additional 829,400 dth/day of firm transportation service from northeastern Pennsylvania to multiple delivery points along Transco’s Leidy Line in Pennsylvania, Transco’s mainline at the Station 210 Zone 6 Pooling Point and multiple delivery points in Transco’s Zone 6 in New Jersey, Pennsylvania, and Maryland.
According to its application for that project, “Transco has executed binding precedent agreements with PECO Energy Company, Elizabethtown Gas Company, Baltimore Gas and Electric Company, South Jersey Gas Company, PSEG Power, LLC, South Jersey Resources Group LLC, Williams Energy Resources LLC, and New Jersey Natural Gas Company.” We recently discussed this project in Is MVP Really Going to be the Last Pipe Built that Serves the Marcellus/Utica? and how it is designed to avoid some of the permitting challenges that other projects have faced. However, despite those favorable characteristics, if the project runs into trouble it is possible that a substitute might be found that sources gas from MVP and brings it north from Transco’s Zone 5 to Zone 6 to serve many of these same customers.
In Need for More Pipelines Along the Gulf Coast, we noted that the LNG terminals being built along the Gulf Coast tend to include “last mile” pipelines that connect to the interstate system, but may not include capacity further upstream. Two of these last mile pipelines currently pending at FERC include connections to Transco, which may create demand for the gas coming from MVP with modifications to the Transco system. The CP Express project has an interconnect to Transco and will provide gas to the planned CP2 LNG terminal located next to Venture Global’s current Calcasieu Pass LNG terminal that is under construction. The CP Express project is designed to ultimately provide 4.4 Bcf/day of gas to the new terminal. Similarly, FERC is currently reviewing the Line 200 and Line 300 Project by Driftwood Pipeline. That project also includes an interconnect with Transco and would supply 4.6 Bcf/d of gas to its only shipper, the Driftwood LNG terminal.
Beyond these known projects, there are other possible projects that could be envisioned to increase the demand for MVP’s gas once it is completed. Each of the three states within Transco’s Zone 5 have their own set of complementary pipeline systems. Within Virginia, both Columbia Gas Transmission and East Tennessee Gas have facilities that may be able to take some of the gas from MVP and deliver it to their customers within Virginia. Similarly, within South Carolina, Carolina Gas Transmission has an extensive network of pipelines that may be capable of modifications designed to take additional volumes from Transco once MVP’s supply is assured. North Carolina is somewhat unique in that the interstate pipeline systems within the state are pretty much limited to Transco itself. However, the local distribution companies in the state, Piedmont Natural Gas and Public Service Company of North Carolina, have extensive networks of transmission lines and have been very active and successful in getting approval for the expansion of those networks.
If you would like more information on the projects mentioned, please contact us.