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Duke Energy-Dominion $4.5-$5B Natural Gas Pipeline Plan

Zacks Equity Research

A boom in natural gas demand has led the U.S. utility behemoth Duke Energy Corp. (DUK) and three other major U.S. energy companies to build a new natural-gas line that will run from West Virginia to the southeast corner of North Carolina.

The proposed $4.5–$5 billion, 550-mile natural gas pipeline will be built by Duke Energy Corp, Dominion Resources Inc. (D), Piedmont Natural Gas Co. (PNY) and AGL Resources Inc. (GAS) under a joint venture – Atlantic Coast Pipeline LLC. Construction is expected to begin in 2016 and come into service by the winter of 2018. The project is yet to receive Federal Energy Regulatory Commission approval.

The Atlantic Coast pipeline would run from West Virginia, through Virginia and into eastern North Carolina to bring 1.5 billion cubic feet (Bcf) of natural gas per day to North Carolina and Virginia. Dominion will own a 45% interest in the project while Duke will own 40% through its Commercial Power business unit. Among the other co-partners Piedmont will own 10% and AGL Resources the remnant 5%.

The U.S. utility giant Duke Energy seems inclined to return to its pipeline operations to ensure a stable supply of natural gas. We remind investors that the company had spun off its natural-gas unit as Spectra Energy Corp. back in 2007. However, following its 2012 merger with Progress Energy Inc., Duke requires more natural gas to meet rising power demand in eastern North Carolina.

Evolving technologies like horizontal drilling and hydraulic fracturing or fracking have led to a boom in natural gas production in the Marcellus and Utica shale fields in West Virginia, Ohio and Pennsylvania.

On the other hand, increasing pollution from coal-fired plants has sparked off new environmental regulations and a leaning towards clean burning fuels like natural gas. The latest proposal from the Environmental Protection Agency calls for lowering carbon dioxide emissions from power plants by 30% by 2030 from 2005 levels.

For Duke Energy, the natural gas pipeline partnership will enable it to lower its dependence on coal. Coal represents about 40% of Duke Energy’s energy mix. The company has in fact retired half of its 14 coal-fired power plants in North Carolina during the past three years.

Duke Energy's two North Carolina regulated utilities – Duke Energy Carolinas and Duke Energy Progress – along with Piedmont Natural Gas, Dominion's Virginia Power and PSNC Energy will be the customers of the Atlantic Coast pipeline. The majority of the pipeline capacity will be bought by these utilities to generate power for industrial and residential clients.

This project will not only contribute to lower greenhouse gas and other emissions, it will also generate construction jobs during the development phase as well as revenues for state and local governments throughout North Carolina, Virginia and West Virginia.

Duke Energy and Dominion presently hold a Zacks Rank #3 (Hold).

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