Natural-gas prices gain on potential Marcellus pipeline delay

U.S. natural-gas futures surged after federal regulators limited construction on a pipeline, a move that may delay new Appalachian supplies from reaching the market.

Dallas-based Energy Transfer Partners is barred from new drilling along some segments of its $4.2 billion Rover pipeline, the Federal Energy Regulatory Commission said in an order posted Wednesday. The move follows a request by Ohio regulators to review spills of drilling fluid and other environmental violations related to construction of the line. Ohio has fined Energy Transfer $431,000 for those violations.

Construction is being closely watched as Rover has the potential to unlock a new wave of supply from the largest U.S. gas-producing region. The Marcellus, which saw a slowdown in drilling after prices fell to a record low last year, is displacing traditional supplies out of the Gulf Coast and putting the U.S. on track to become a net gas exporter in 2018 for the first time in decades.

Gas futures for June delivery rose 6.5 cents, or 2 percent, to $3.29 per million British thermal units on the New York Mercantile Exchange.

“The market is really focused on the Rover expansion and the market took the order that came out earlier today in a very bullish way,” said Kyle Cooper, director of research at IAF Advisors in Houston. “Reading the order, it looks like FERC is going to be in their business a lot. At a minimum, it’s really going to slow down the progress.”

The order could delay the project timeline by 30 to 90 days, he said.

The initial stage of the project, which would transport gas to the Midwest, is scheduled to come online in July, with a full startup slated for November. The company said that timeline is unaffected by Wednesday’s order.

Energy Transfer sees “no change” to its construction schedule and is working with FERC and Ohio to resolve the matter, spokeswoman Alexis Daniel said in an email.

Rover will deliver as much as 3.25 billion cubic feet a day of gas from the Marcellus and Utica shales in the Northeast. That’s 14 percent of the total 23.2 billion cubic feet of production expected out of those deposits in May, according to data from the U.S. Energy Information Administration.

Concerns about a string of drilling-fluid spills related to construction in Ohio prompted federal regulators to bar new drilling on several Rover segments. The order also requires Energy Transfer to hire a third-party contractor to determine whether the company could have prevented or minimized the spills, which sent around 50,000 barrels of drilling fluid into pristine wetland areas.

Regulators will allow Energy Transfer to continue work on its mainline, the segment most critical to meeting startup targets. That means its November in-service date is still possible, according to Bloomberg Intelligence analyst Brandon Barnes.

This story was originally published May 10, 2017 at 4:28 PM with the headline "Natural-gas prices gain on potential Marcellus pipeline delay."