North Carolina could be awash in cheap natural gas for years as pipeline expansions link the state to booming shale gas production in the Northeast.
While the natural gas bonanza could spur industrial development and hold down electricity costs here, it would create one less reason for energy developers to take financial risks to explore North Carolinas virgin gas deposits in Lee, Moore and Chatham counties.
In December 2015, the Transco gas pipeline network that runs from the Gulf of Mexico to the Northeast is expected to reverse direction for the first time and move natural gas southward. The historic shift, to accommodate gas production in the Marcellus shale formation in Pennsylvania, will supply the South with a major source of natural gas outside the Gulf.
The gas influx could come just months after a fracking moratorium is lifted in North Carolina. A legislative proposal now making its way through the General Assembly would lift the states ban on fracking by March 2015, a move that fracking supporters hope spurs shale gas exploration here.
Instead, however, the reconfiguration of the nations gas pipelines will likely send North Carolina to the back of the queue for drilling priority.
The more successful exploration efforts are elsewhere, the worse it is for North Carolina, said Kevin Brown, exploration manager for WhitMar Exploration, the Colorado energy company that has leased 5,950 acres in Lee County. To be honest, between the low commodity price and the political uncertainty (in North Carolina), its kind of thrown a wet blanket on the enthusiasm there.
The N.C. Mining & Energy Commission is only just now formulating environmental safeguards and public protections to govern fracking, and impatient Republican lawmakers have proposed lifting the fracking moratorium. The moratorium bill, which would also allow deep well injections of fracking waste, has renewed controversy about the safety of unconventional gas drilling.
Brown said it could be decades before shale gas exploration gets under way here, given the low price of natural gas and the risks of energy exploration in a state with no history of gas drilling. The majority of WhitMars leases in this state were signed in 2010 for 20-year terms, giving the company ample time to wait out local developments here. WhitMars shortest leases will expire in 2020, according to Lee County property records.
Looming lease expirations in Pennsylvania are contributing to the natural gas glut in the Marcellus shale formation, one of the largest shale gas deposits in the world. Developers have drilled and fracked as many as 1,000 wells there that as yet have no pipeline link, in a move to exercise their lease rights before the contracts expired. The well operators are now hoping for higher natural gas prices and awaiting interconnections to move the fuel to market.
North Carolina utilities sign on
A new pipeline to move the backlogged shale gas could become available in late 2015. Thats when Oklahoma pipeline operator Williams expects to complete a planned $600 million southeast expansion project for its Transco network, a 1,800-mile multipipeline system that runs from south Texas to New York City.
According to preliminary filings with the Federal Energy Regulatory Commission, the Transco system would become bi-directional along the main arteries that have flowed one way for more than a half-century. Williams plans to file its application with the FERC this fall seeking to reverse direction on the route that slices across North Carolinas western Piedmont.
To win federal approval, the project requires firm commitments from Transco users. Six customers have signed long-term deals, including North Carolinas natural gas utilities: Piedmont Natural Gas and PSNC Energy.
PSNC has reserved extra pipeline capacity that represents 14 percent of the utilitys 2012 delivery capacity from the Transco system, said spokeswoman Angela Townsend. PSNC is interested in receiving gas from the Gulf as well as from the Marcellus shale to diversify its supply in case hurricanes knock out Gulf facilities, Townsend said.
Piedmont is also interested in supply diversity at a time of growing customer demand for natural gas. Piedmont is a gas supplier to Progress Energy, the Raleigh electric utility that has recently added two natural gas power plants and is constructing a third near Wilmington. As part of Progress shift from coal to gas, Piedmont is constructing a 120-mile supply line to Progress Sutton Combined Cycle Plant, which is expected to begin generating power late this year.
Need for Gulf gas would ease
Marcellus shale gas today represents about 20 percent of the natural gas supply on the Transco system, said Camilo Amezquita, Transcos director of customer services. The Southeast expansion project would increase the Marcellus shale gas portion to almost 25 percent.
The Transco pipeline wouldnt immediately deliver Pennsylvania shale gas to the South, Amezquita said. Rather, it would displace the need for shipping Gulf gas up north. But at times of a supply imbalance, North Carolina could receive northern shale gas, he said.
If they bring that line down, it will create less interest in pursuing the gas in North Carolina, said pipeline construction consultant Mark Bridgers, a principal with Continuum Advisory Group in Raleigh. Youll already have a high volume of easily accessible gas.
North Carolina is already receiving shale gas from the Haynesville shale deposit in Louisiana and Texas and from the Barnett shale basin in Texas. Both feed into the Transco pipeline.
Brown of WhitMar Exploration noted that North Carolina would require drilling 13 exploratory wells to assess the potential for the states Triassic shale basins. Bringing in heavy equipment, drilling muds and labor required for such a project could cost $100 million, Brown estimated.
Theres no sense to go rushing through anything, Brown said. Itll get used, eventually.
Price may not be right till 2026
Shale gas today represents nearly 40 percent of the nations natural gas usage and some estimates project the nation has a 200-year supply of natural gas. But the abundant supplies have resulted in historically low prices that have made gas drilling less practical.
The U.S. Energy Information Administration projects that natural gas wont break the $5 barrier, as valued per million British thermal units, until 2026. Thats the price at which some experts say it would become feasible to explore for natural gas in North Carolina. Natural gas is currently selling for about $3.85.
Were a long way away until the price really spikes up, said oil-and-gas financial adviser Sam McNeil, managing partner of River Capital Partners in Weddington, south of Charlotte. A lot of people who are getting hot and bothered about fracking right now, theyre sort of wasting their time because we are so far off.