Northeast gas production always vastly outstrips in-region demand, and this is even more true in the shoulder season of early fall, when demand for natural gas in the Northeast is low. This makes transit out of the region crucial, and news on that front for this week is distinctly bearish for Northeast producers. The closest LNG facility to the Northeast production region is currently down for its annual maintenance (see U.S. LNG Feedgas Demand Dips On Cove Point LNG Maintenance Shutdown ) which is expected to last for roughly three weeks. The maintenance outage at Cove Point began on September 20 and its absence will keep at least 0.7 Bcf/d of natural gas from leaving the region. According to data from Bloomberg, cash basis at Eastern Gas South (EGS) was minus $0.87/MMBtu in trading for Friday (9/20) delivery last week, but plunged to minus $1.07/MMBtu in trading for the weekend, after maintenance at Cove Point was known.
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It's a Hard Knock Life - Appalachia Gas Outflows, Prices Take a Hit with TETCO Capacity Cut
This year has been a mixed bag for Appalachian natural gas producers. Outright prices in the region are higher than they’ve been in a few years, thanks to lower storage inventory levels and robust LNG export demand. However, regional basis (local prices vs. Henry Hub) is weaker year-on-year as higher production volumes have led to record outbound flows from Appalachia and are threatening to overwhelm existing pipeline takeaway capacity. Last month, Equitrans Midstream officially announced that the start-up of its long-delayed Mountain Valley Pipeline (MVP) project will be pushed to summer 2022 at the earliest. Then, just last week, outbound capacity took another hit as Enbridge’s Texas Eastern Transmission (TETCO) pipeline was denied regulatory approval to continue operating at its maximum allowable pressure, effectively lowering the line’s Gulf Coast-bound capacity by nearly 0.75 Bcf/d, or ~40%, for an undefined period. Today, we consider the impact of this latest development on pipeline flows, production, and pricing.
Appalachian Cash Gas Prices Lifted By Cold Snap Over Holiday Weekend
Danger Zone - The Outlook for the Appalachian Natural Gas Market
It’s been a while since the Appalachian natural gas market has looked this bullish. Outright cash prices at the Eastern Gas South hub are at multi-year highs. Regional storage inventories are sitting low, setting the stage for supply shortages and still higher prices this winter. But the potential for severe takeaway constraints and basis meltdowns are lurking, and by next year, they could become regular features of the market again like they were in the 2016-17 timeframe, or worse — at least in the spring and fall when Northeast demand is lowest. Regional gas production is still being affected by maintenance and has been somewhat volatile lately as a result, but it averaged 34.5 Bcf/d in June, just 300 MMcf/d shy of the December 2020 record. What’s more, at current forward curve prices, supply output could surpass previous highs by next spring and grow by ~ 5 Bcf/d (15%) by 2023. Outbound flows set their own record highs this spring, running at over 90% of takeaway capacity, and will head higher, which means that spare exit capacity for supply needing to leave the region is shrinking. The handful of planned takeaway expansions that remain are facing environmental pushback and permitting delays, and the few that are targeting completion in the next year may not be enough. Today, we provide the highlights of the latest forecast from our new NATGAS Appalachia report.
