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Back to Zero - Appalachia's Dwindling Natural Gas Pipeline Takeaway Capacity

Northeast natural gas production in 2021 to date has averaged 34 Bcf/d, up 1.4 Bcf/d year-on-year, and the higher gas price environment currently is signaling more upside to production in the years to come. At the same time, downstream feedgas demand from LNG export facilities is at a record high and also headed higher as more liquefaction capacity is set to come online in the coming months. So, despite lower-than-normal inventory levels in the Northeast, outflows from the Appalachian basin have soared to new highs this year, and utilization of outbound pipeline capacity is up to an average 90%, a level we haven’t seen since the 2016-17 timeframe. Unlike 2016-17, when there was a slew of major pipeline projects to expand egress, now there are just two or three at most — and two of those are greenfield projects that face an uncertain future. As such, spare exit capacity is getting increasingly sparse, and Appalachian producers are bound to hit the capacity “wall” in the next two years. When will the Northeast run out of exit capacity and how bad could constraints get? Today, we provide highlights from our new Drill Down report, which brings together our latest analysis on Northeast gas takeaway capacity and flows.

In recent months, we have spent many a blog discussing the changing dynamics in the Northeast gas market, including production and pipeline flow trends (see the Flick of the Switch and Headed for Heartbreak blogs) and providing updates on key expansion projects vying to add egress out of the Appalachia basin (see the Slippin’ and Slidin’ blog on the Mountain Valley Pipeline project and Movin’ On Up blog discussing the latest on the PennEast Pipeline). Given that the Northeast gas market is approaching another major inflection point, last month, we also launched a weekly report — the RBN NATGAS Appalachia — to track developments in real time and provide weekly updates on our fundamental and basis outlooks for the region. And today, we’re launching our “Back to Zero” Drill Down report for Backstage Pass subscribers, which pulls together and updates our analysis on production, takeaway capacity and outflows from Appalachia, and how these components will evolve and impact regional prices in the coming years as production and downstream demand grow but supply takeaway capacity remains relatively stagnant.

Appalachian natural gas producers are no strangers to pipeline constraints, having dealt with them for the better part of a decade or more. The U.S. Northeast has been a year-round net gas supply region (i.e., a net exporter of gas to other U.S. regions and Canada) for only about six years, and it has been sending gas to other regions for longer than that on a seasonal basis. As such, the Northeast market’s ability to balance is highly dependent on its ability to flow any surplus gas — after in-region demand and storage needs are met — to downstream markets in other regions. The region’s production growth has faced a number of hurdles in recent years, including shrinking capital budgets, lower rig counts, a prolonged period of low prices and, last year, also pandemic-related demand destruction and the resulting price-driven shut-ins at the wellhead during the shoulder months. Nevertheless, Northeast supply has still managed to climb to new highs.

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