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In the pipeline

Within days of making the final welds to its new, $115 million natural gas pipeline connecting Fort Worth to Paris, Texas, Crosstex Energy L.P. said it would expand the line. The $55 million extension will take it further into the Barnett Shale geological formation in Parker County.
/ Source: Dallas Business Journal

Within days of making the final welds to its new, $115 million natural gas pipeline connecting Fort Worth to Paris, Texas, Crosstex Energy L.P. said it would expand the line. The $55 million extension will take it further into the Barnett Shale geological formation in Parker County.

Another Dallas pipeline company, Energy Transfer Partners L.P., last summer finished its $55 million extension of a two-foot-wide pipeline loop west of Fort Worth. As soon as that was done the line was full, and the company in October decided to add a same-size line parallel to the loop it had just completed at a cost of $32.1 million.

Across the state, Energy Transfer, Crosstex and a host of other pipeline businesses are digging, welding and burying new pipelines at a ferocious pace. Their activity is part of a fundamental shift in where North America gets its natural gas -- and in the role North Texas plays in that business.

As North Texas plays a growing part in supplying natural gas to the continent, companies aiming to own parts of the system that transports the fuel are rushing to reshape infrastructure here.

Consumer turned producer

For decades, Dallas and Fort Worth consumed natural gas from elsewhere.

Increasing demand, high prices and innovative production west of Fort Worth have changed that. With other gas supplies slowing, and demand across the continent growing, producers found new ways to get gas out of the Barnett Shale, a gas-rich geological area south, west and north of Fort Worth.

"The Barnett Shale has really come at a time to meet that need," said Barry Davis, CEO of Crosstex Energy.

North Texas now produces more natural gas than it can use. And the gas produced here can be sold for more in parts east. Trouble is, most of the pipelines built around the Barnett Shale were built for local uses, not for transporting gas out of the area. The main existing pipeline networks head west to Odessa or south to Houston.

"The supply is coming from a different place," said Steve Haywood, vice president of gas marketing at Chief Oil & Gas L.L.C. "When there's a shift, it creates a need for an awful lot of huge projects."

That goes to the nature of natural gas. You can't easily put it in a box or on a truck. For the most part, it must be shipped via pipeline.

Pipeline companies are spending hundreds of millions of dollars in North Texas to reverse what is essentially a "backward network," or one designed to serve local consumers.

"You have to get gas where the burner tip needs it," says Ray Davis, co-CEO of Dallas-based pipeline operation Energy Transfer Partners.

Full pipelines

Toward that end, natural gas producers in the Barnett Shale are underpinning the pipeline projects by signing long-term commitments to use the planned pipelines.

"If they can't get it out, they have to shut it in," said ETP's Davis. "In the Fort Worth basin, we've had serious curtailment issues."

For the pipeline builders, it works a lot like an office building. With a firm commitment from a natural-gas producer, the project can get financing.

Chief Oil, for instance, has committed to supply half the capacity of the new Crosstex line.

Energy Transfer has signed up Fort Worth producer XTO Energy Inc. to fill 200 million cubic feet a day of natural gas for 10 years on a massive 42-inch pipeline it plans to build between Cleburne and Carthage. The $535 million construction project would create capacity for a 1.6 billion-cubic-foot a day pathway that ultimately will connect to Northeastern states like New York and Massachusetts. That pipeline could be completed by December.

In a prior era, it often took the involvement of the end-user, like the local natural gas distributor, to get a pipeline built, rather than the producer, said Dick Erskine, president of Atmos Texas Pipeline, a subsidiary of natural-gas utility Atmos Energy Corp.

Atmos Texas Pipeline and Energy Transfer expect to complete in early April a $27 million, 45-mile pipeline across the northern part of the Metroplex.

Atmos Texas wants the line, which connects Justin, Denton and Frisco, to serve customers of Atmos Energy.

It will help the company increase its service capacity in booming northern suburbs. Energy Transfer values the line as an outlet to reach gas-transport hubs to the east.

That has real value for producers.

"We try to get gas in transmission lines to head east of here," said Chief's Haywood. "Prices are better east of here."

Gas sold at a pipeline hub in the East Texas town of Carthage can fetch 80 cents to $1 more per thousand cubic feet than it might fetch in parts west or south. A thousand cubic feet of natural gas topped $10 for wholesale buyers in December and has declined to the $7 range following a mild winter.

The price difference at different selling spots has to do with demand, says Crosstex's Davis. Demand on the West Coast is weak.

The West Coast has many sources for gas, including Canadian gasfields and newer developments in the Rocky Mountains. The gas-producing regions that have primarily served the East Coast are the ones with the greater slowdowns in production.

Connecting new production here to old demand in the East has pipeline veterans busy and happy.

Still building

To build itself into a $700 million company, Crosstex spent $973 million between January 2001 and December 2005 on acquisitions and buildout projects.

"When you start with nothing, you better be a growth company," Barry Davis told an early-March analyst conference hosted by Wachovia Securities.

But as indicated by the completion and expansion of its new North Texas line, Crosstex isn't ready to slow down.

In the coming year, it plans to spend $250 million on improving or building pipelines alone.

"It's not very often these projects get built," Barry Davis said.

Right now, most every project is getting built. Pipeline operators are conscious of that, but they're more concerned about competition than overbuilding.

Speaking at the same analyst session as Davis, the president of Houston pipeline operation Enbridge Energy Co. Inc. said overbuilding pipelines in Texas is doubtful.

"I don't think you can get an overcapacity to the really premium markets," Dan Tutcher said. "If you build every project that's on the drawing board right now ... I don't think you're going to have over-capacity out there."