May 1, 2014

Texas and Rockies natural gas mitigates disruption from Wyoming processing plant explosion

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On April 23, one of the five units exploded and caught on fire at the Opal gas processing plant in southwest Wyoming. Yesterday, Williams Company, Opal's operator, brought two of the plant's remaining four units back into service. These two units can process 0.40 billion cubic feet per day (Bcf/d) of natural gas, and Williams is working to bring the remaining two units not directly affected by the explosion back on line. Combined, these four units can process 1.10 billion cubic feet per day (Bcf/d), enough to restore the plant to its daily processing volume prior to the explosion, which was 1.00 Bcf/d, or 1.5% of total U.S. dry natural gas production in 2013. Total plant processing capacity for all five units is 1.50 Bcf/d. While the plant has been down, natural gas pipeline flows into California and the Southwest (Arizona, Nevada, and New Mexico) from the Permian Basin in West Texas and New Mexico, and rerouted production from the Rockies, have offset lost output from Opal. This has limited natural gas price increases in the region that could result from temporary supply shortages.

Before the explosion, Williams's Opal plant sent 50% of its gas to the Kern River pipeline system, and about 40% to the Ruby Pipeline, according to data from Bentek Energy. Kern River delivers gas from the Rockies to Bakersfield, in Southern California, and Ruby transports Rockies gas to Malin, Oregon, on the state's southern border with California. However, these pipelines can also receive gas at the Opal Hub from a number of other production areas in New Mexico, Utah, and Colorado. The day of the explosion, flows to the West from Kern River dropped 0.16 Bcf/d (7%), and flows from Ruby dropped 0.08 Bcf/d (8%). Flows on both lines rebounded within the next three days, as producers rerouted natural gas through other processing plants. In particular, flows on Enterprise Products Partners's Pioneer plant have averaged between 0.45 and 0.50 Bcf/d since the Williams explosion, more than double the previous 30-day average.

Flows from Texas also increased following the processing plant explosion. Flows to the Southwest on the El Paso Natural Gas (EPNG) pipeline system, which carries gas west from the Permian Basin in West Texas, increased by 0.17 Bcf/d (10%) on April 23, and by another 0.46 Bcf/d (25%) over the following two days. Mild temperatures in Texas likely freed supplies to flow west on EPNG to consumers in Nevada and Southern California. Flow of Canadian gas from the Pacific Northwest to Malin, Oregon, on the Gas Transmission Northwest (GTN) pipeline system was relatively constant, as was Rockies gas moving to the Pacific Northwest (Washington, Oregon, and Idaho) on Williams's Northwest Pipeline.

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As the natural gas spot price increased at Opal Hub in response to a tighter supply/demand balance for Rockies natural gas production flowing west, the availability of Permian production on El Paso relieved some of the upward pressure on spot prices at Opal and other Rockies trading points, which remained below the national benchmark spot price at the Henry Hub in Erath, Louisiana. For the past month, the Opal spot price and most Rockies prices have generally traded at a discount to the national benchmark spot price at Henry Hub. While prices increased somewhat in the days following the explosion, most prices in the Rockies remained several cents per million British thermal units below Henry Hub.

The explosion at the Opal plant, as well as processing plant maintenance problems in the Northeast, led to declines in total U.S. dry production last week. Between April 22 and April 24, daily dry production ranged between 66.4 Bcf/d and 66.8 Bcf/d, which represents a decline of between 1% and 1.5% from the previous 30-day average. The effect of the processing plant explosion on total production has been much less than cold weather-related disruptions to Rockies production that occurred this winter.

Principal contributors: Katie Teller and Mike Ford