New Natural-Gas Source May Help Lower Prices Further

A major new source of domestic natural-gas supplies -- the Independence Hub off the coast of Louisiana -- launched recently and promises to put more downward pressure on already sliding natural-gas prices.

Anadarko Petroleum Corp. is set to announce that the first gas has begun flowing through a pipeline from its offshore Independence Hub platform, according to a company official. The start-up is on time and without major glitches.

Located in 8,000 feet of water on Mississippi Canyon block 920, approximately 123 miles southeast of Biloxi, Miss., the Independence Hub is the deepest production platform ever installed and also is the world's largest offshore natural gas processing facility.

Natural gas production through the Hub began on July 19, 2007, from the first of 15 subsea wells located in 10 anchor fields. The producers expect to ramp up production toward the Hub's capacity of 1 billion cubic feet of natural gas per day (Bcf/d) by late 2007.

"The Independence project is a remarkable accomplishment by our industry," Anadarko Chairman, President and CEO Jim Hackett said. "It is a true testament to the collaboration of the partners and the ingenuity of the individuals who worked to deliver these once unreachable resources to American consumers. Together we achieved first production on time and within budget from a world-record-setting facility in an ultra-deep area of the Gulf where previously there was no infrastructure."

The offshore facility is expected to send close to 50 million cubic feet of gas a day initially, and ramp up to one billion cubic feet a day, or 1.5% of domestic production, over the next few months. The Independence Hub is located 110 miles southwest of the mouth of the Mississippi River.

The additional gas supplies from the deepwater fields that feed the Independence Hub should push natural-gas prices down further as the new gas hits a well-supplied market that already was heading down due to a cooler summer than last year.

During the summer, two factors tend to drive gas prices. One is the potential for hurricanes severely disrupting Gulf of Mexico production. The other is the amount of gas already in storage. Utilities purchase gas during the summer to store in underground caverns until the winter. When storage hits capacity, as it did last September, prices tend to drop.

"Last year we hit capacity, even following the high-demand summer months. Right now, we are looking at the same thing, which is putting downward pressure on natural-gas prices. Inventories are high and building and could again approach capacity," says Tancred Lidderdale, an economist with the Energy Information Administration, the statistical arm of the Department of Energy. Additional supply, he says, "certainly would help to lower prices."

The EIA reported recently there is 2.69 trillion cubic feet of gas in storage, or about 16% above the five-year average for this time of year.

"It's a pretty healthy market for supply in our opinion," says Michael S. Haigh, director of commodity derivatives at Société Générale. In addition, high U.S. gas prices relative to Europe have drawn the majority of spot-market shipments of liquefied natural gas, or LNG, in the Atlantic Ocean, further boosting supply. LNG import levels so far this summer are 75% above the same period last year, says Mr. Haigh.

Natural-gas futures prices have fallen over the past month, closing up 17.8 cents, or 2%, to $6.706 per million British thermal units on the New York Mercantile Exchange yesterday. This is down about 11% from a month ago, though still up 6.5% for the year.

The severity of the hurricane season will determine the direction of pricing through the end of September. If no disruptive hurricanes emerge, gas prices could drop $1 per million BTUs. says Paul Flemming, director of power & gas research at Energy Security Analysis Inc. in Wakefield, Mass.