Energy Transfer, Chesapeake In Pact For Gas Pipeline

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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.

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