Mississippi: natural gas mecca

1. Southeast 2. Northeast 3. Midwest 4. From Southwest panhandle 5. West

Key Natural Gas Transportation Corridors >> Five major routes from the producing areas of the Southwest (TX, OK, LA, AR, NM) to: 1. Southeast 2. Northeast 3. Midwest 4. From Southwest panhandle 5. West. Source: ANGA

Mississippi residential and industrial customers should expect low electricity prices from natural gas-fired generation for years to come. While prices nationwide are projected to be low and stable, Mississippians could likely see even better prices because of this state’s convenient geographical location over a pipeline hub.

In addition to pipeline infrastructure, Mississippi has an abundance of underground salt dome storage capacity – something very attractive to pipeline operators and also a job creator.

James Tramuto of Houston-based Southwestern Energy said America is on the front end of a natural gas technology revolution, and Mississippi is in a perfect place to get bargain gas prices.

“You have every one of the competitors working in the state. When everyone has facilities and everyone is marketing in and around those facilities, you get the best competitive rates in the market place. Whether you’re a power plant or industrial customer, when the deliverability is there and it’s easy, then people will give you a better deal,” said Tramuto, who is vice president of governmental and regulatory strategies for Southwestern Energy.

In its early Energy Outlook 2011, the U.S. Energy Information Administration (EIA) projects the price of gas will stay low as it is now — under $5 per thousand cubic feet — through 2022.

Storage: An Economic Development Opportunity

Gas storage is important to pipeline companies because it is a balancer that provides stability and flexibility. Storage allows pipelines to absorb swings. For instance, when the weather changes resulting in higher energy demand and a producer did not provide enough gas, a pipeline operator can dip into storage reserves.

When it comes to storage, a salt dome cavern can be ideal. An alternative is a depleted natural reservoir, which has injection and withdrawal periods that span several months. But with a salt dome, gas can be pumped in and withdrawn within the same day.

The Mississippi Energy Policy Institute (MEPI) is discussing ways that Mississippi can be more competitive in the natural gas storage arena. When compared to Louisiana and Alabama, Mississippi has the necessary geology, but is getting beat in the number of storage fields, said David Gates, president of Atmos Energy Mississippi and chairman of MEPI’s natural gas committee.

New Pipelines and Expansions Connecting SE Pipelines to Major Shale Plays in Texas and Oklahoma

New Pipelines and Expansions Connecting SE Pipelines to Major Shale Plays in Texas and Oklahoma. Source: ANGA

“Storage is definitely an opportunity in this state. We‘ve been looking at some tax incentives. We have an inventory tax in Mississippi,” Gates said.

One consideration is giving local entities more control over taxes. Tax revenue is an income stream for municipalities, but in some cases, jobs created by storage facilities might outweigh some of the tax benefits, he said.

U.S. pipeline giant Kinder Morgan notes that pipelines in Mississippi are a big tax collection opportunity for counties.

In 2009, Kinder Morgan finished the multi-billion dollar, 500-mile Midcontinent Express Pipeline, which runs through Central Mississippi. And in January 2011, Kinder Morgan’s 185-mile Fayetteville Express Pipeline, which ends in northern Mississippi, went into full service.

The Midcontinent Express and Fayettville Express pipelines produced an estimated $11.1 million and $5.4 million, respectively, in tax revenues for Mississippi, the company said.

Additionally, Kinder Morgan also has owns petroleum products pipelines and natural gas storage terminals in several Mississippi cities.

Allen Fore, director of community relations for Kinder Morgan Energy Partners, said the regulatory environment in Mississippi is favorable to the natural gas industry.

“Mississippi is an important state geographically for pipeline transportation. It’s also a good state to do business in. The regulatory environment is balanced. Mississippi has a good balance with their understanding of projects like domestic energy infrastructure projects, which are getting domestic energy from locations that are usually pretty remote to market. Mississippi has a good understanding of the relationship between environmental protection and the promotion of energy infrastructure,” Fore said. “I think Gov. Barbour in particular has been very forward-looking and progressive in establishing Mississippi as open to pipeline infrastructure.” (Please see info box on “2010 Ad Valorem Property Taxes from Natural Gas Pipelines.”)

New Technology: Less time, reduced risk

America’s new windfall of natural gas – predicted to be a 100-year supply at the current rate of consumption – became possible through a new drilling technique called fracturing, which gives producers access to gas in rock called shale. Years ago, producers could detect natural gas supplies in shale but did not possess the technology to access them. That has changed in recent years.

The EIA projects that shale gas will account for about 46 percent of U.S. natural gas production by 2035.

High-producing nearby shale plays are the Fayettville Shale in Arkansas, the Haynesville Shale in Louisiana and the Barnett Shale in Texas.

With advanced technology, wells can be drilled more quickly, more efficiently and with a smaller environmental footprint. Additionally, improved technology has taken out much of the risk.

“Last year we drilled about 550 wells in the Fayettville shale, and there were no dry holes. What we’ve done is create a merchandising activity. It is not a risk play. Once you define the limits of the field and you know what you’ve got, you know what you’re going to get,” Tramuto said.

Fixed gas contracts are now possible, he added.

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