UPDATE: Energy Transfer, Chesapeake In Pact For Gas Pipeline

Energy Transfer Partners L.P. (ETP) Tuesday said it reached a deal with Chesapeake Energy Corp. (CHK) to build a large interstate pipeline to transport natural gas from the booming Haynseville Shale formation in Texas and Louisiana.

The "Tiger Pipeline" will cost $1 billion to $1.2 billion to build and will have an initial capacity of at least 1.25 billion cubic feet of gas a day, the companies said in a press release. The 42-inch diameter line will stretch 178 miles through the Haynseville Shale from an Energy Transfer Partners' system near Carthage, Texas to interconnections with several interstate pipelines in Louisiana. The pipeline is expected to be in service by mid-2011.

Dallas-based Energy Transfer Partners will build the line, while Chesapeake, the biggest producer of natural gas in the U.S., has committed to use about 1 billion cubic feet a day of pipeline capacity for 15 years.

Phil Weiss, an analyst with Argus Research Co. in New York, said the commitments by both Chesapeake and Energy Transfer Partners underscore the potential of the Haynesville.

"It does give you an indication of the size of the field, and Chesapeake is not the only company that believes in it," Weiss said.

The Haynseville is one of several shale-rock formations scattered under various parts of the U.S. that contain enormous amounts of natural gas, but had until recently proven too technically difficult and expensive to exploit. Over the past couple of years, however, producers have drilled down, then horizontally through the dense rock, unlocking the gas within and fueling a boom in domestic U.S. gas production.

"Chesapeake believes the Haynesville Shale has the potential to become the largest producing field in the country," Chesapeake Chief Executive Aubrey McClendon said in the press release, adding that significant transportation capacity will need to be built to bring this gas to market.

Besides Chesapeake, Devon Energy Corp. (DVN), Petrohawk Energy Corp. (HK) and Plains Exploration & Production Co. (PXP) hold significant leases in the Haynesville shale.

 
   Pact Comes With Gas Market In Doldrums 
 

The deal to transport Haynesville gas comes after a turbulent year for the gas market and producers like Chesapeake. The boom in shale gas production and declines in industrial demand for the fuel has helped to recently drive the price of gas down to lows not seen in more than two years.

The plunge in prices, plus the credit crunch, pummeled producers' share prices from summer highs and drove several companies to drastically rein in spending on exploration and production.

Shares of Oklahoma City-based Chesapeake were recently down 1.8% at $15.52, nearly 80% off the 52-week high of $74 hit on July 2, the same day the front-month gas futures price peaked at $13.694 a million British thermal units for the year on the New York Mercantile Exchange. Units of Energy Transfer Partners were up 40 cents at $34.40 and gas for February delivery on Nymex was recently up a penny at $4.50/MMBtu.

-By Mark Long and Jason Womack, Dow Jones Newswires; [phone]; [e-mail]

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