With the start-up of new capacity on Energy Transfer Partners’ Rover Pipeline out of the Southwest Marcellus and Utica now a reality and the service on several other pipeline expansions out of the Northeast expected to begin soon, some of the questions that have been vexing the market for years are about to be answered. Principal among these: How much will natural gas production in the region grow and how fast? How will Northeast supply growth affect the larger U.S. market? And how will supply growth across the country compare with increasing demand? (Hint: the numbers could be staggering, the impact will be too, and there could be a big supply/demand disconnect.) Today we examine how a prospectively huge supply/demand imbalance in the U.S. natural gas market might be rectified.
As of the latest round of earnings calls in late July and early August, producers in the U.S. Northeast (Marcellus/Utica) collectively say they anticipate a huge 14.5 billion cubic feet/day (Bcf/d) of natural gas production growth by the end of 2019. As a general rule, this growth represents producers’ expectations of a natural gas forward curve that hovers around $3.00/MMBtu — hardly a stellar number when viewed in the long-term historical perspective of gas pricing. Combining Marcellus/Utica expectations with those in the red-hot Permian and the growing SCOOP/STACK — as well as renewed interest in the Haynesville, the Eagle Ford and the Niobrara’s Denver-Julesburg (DJ) and Powder River basins — it would appear that everyone expects they can grow. In total, production growth from the beginning of 2017 through the end of 2019 could theoretically achieve a jaw-dropping 24 Bcf/d if producers do what they say they can do. Note that company-based production outlook is more like RBN’s Advance Scenario forecast for 2022 versus 2019, so it’s aggressive. But no matter which forecast you believe, there appears to be a problem in the making. Because demand over the same period is likely to grow by only about 13 Bcf/d. Even though that’s a quite respectable increase in demand, it is still well below the outlook for supply growth.
If all goes according to those producer plans, total Northeast production could rise to about 37 Bcf/d by the end of 2019. This growth expectation is most easily broken down into two distinct geographic areas: (1) the Southwest Marcellus/Utica, which is composed of production from southwestern Pennsylvania, eastern Ohio and northern West Virginia, and (2) the Northeast Marcellus, which is made up of a handful of very productive counties in northeastern Pennsylvania. These two areas are discrete because of the current pipelines that service them and the distinct expansions that will provide new supply outlets — as well as the fact that much of the Southwest Marcellus/Utica produces wet gas loaded with natural gas liquids (NGLs), while the Northeast Marcellus produces dry gas with only minimal NGL content. Most important to our topic today, both areas for some time have been constrained by pipeline capacity limitations that have shackled production growth.