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August 23, 2021

Tetco’s Ticking Time-Bomb

By Stu Tackett, Energy Manager


Texas Eastern Transmission Pipeline aka “Tetco” began as two petroleum pipelines called “Big Inch” and “Little Big Inch” in the 1940s. They were constructed as an emergency war measure shortly after the sea link from Texas oilfields thru the gulf and up into the northeast was compromised by German submarines during WW2. Then, Secretary of the Interior, Harold Ickes, commissioned the interstate pipeline as a safer and more reliable transportation option. After the war had ended, Tetco purchased the pipelines and converted the “Big Inch” line into a natural gas pipeline. The ability to bring natural gas from Texas and the gulf up into the Northeast was considered revolutionary and helped to pave the way for our currently pipeline-laden infrastructure.

Source: Enbridge Inc.

While the pipeline received unwavering support at its inception – Tetco has been met with a fair share of scrutiny regarding regulatory and safety concerns in its recent history. Since 1973, there have been nine reported explosions resulting in the deaths of 41 people and the injuries of countless others. In addition to human casualties, the explosions have demolished homes and apartments from Lancaster, Kentucky all the way up to Staten Island, New York. With the ageing infrastructure and continual expansions over the years, Tetco has remained on the radar of the Department of Transportation’s Pipeline and Hazardous Materials Safety Administration (PHMSA).

On June 10th, 2021 Tetco was notified by PHMSA that they were no longer meeting required safety regulations and were not satisfying the standards set forth after explosions in both 2019 and 2020. The immediate course correction was to limit pressures – resulting in around 800,000 MMBtu per day of SW Pennsylvania gas that could no longer flow south to meet the country’s growing demand for LNG export in the gulf. (South? Yes – Tetco has converted their pipeline to accommodate “backhauls” or gas flowing opposite from its original direction, South to North.)

There was a vague return to service date accompanying the notification of reduction (end of Q3 at the earliest) and the impact on the Dominion market in cash, prompt and future basis was nearly immediate. With so much gas trapped in the Dominion area, the upcoming winter strip for basis fell around ~40% from an average around minus $0.65 to minus $0.85 in just a handful of trading sessions (July-only Basis dropped nearly $0.50). NYMEX notwithstanding, producers began to dial back their already Covid-reduced production schedules on the notion that a weakening of gas basis values would make producing less sustainable.

Fast forward to the end of July without any signs progression and Tetco and PHMSA being tight-lipped about a return to service – Tetco announced that PHMSA was allowing them to resume normal operations on August 4th, 2021. Much the way the pendulum swung months prior to the low side – basis pricing immediately skyrocketed with prompt basis moving up $0.50 and the winter strip moved back up to minus $0.59 – about $0.10 higher than it was before the initial announcement to reduce pressures.

What does this mean for suppliers and endusers alike?  RISK. Tetco is one of, if not the most sprawling gas pipelines in the United States, traversing nearly 9,000 miles and moving approximately 13 Bcf of gas per day. If you’re buying, selling, injecting, withdrawing, producing, or burning anywhere east of the Mississippi, there’s a very good chance the molecules have touched some element of the pipeline. With such a sordid and checkered past – you can nearly guarantee the pipeline is at the top of the regulatory watchlist where one false move can send the markets tumbling and then rising at a moment’s notice once again.

Contact Edison Energy today to learn more!