It's a Hard Knock Life - Appalachia Gas Outflows, Prices Take a Hit with TETCO Capacity Cut

Natural gas pipeline takeaway constraints out of the Northeast worsened in 2020 despite producer cutbacks in the region as high storage levels and weaker demand led to record volumes of Appalachian gas supplies needing to find outlets in other regions last fall. This year, storage levels are lower and could absorb more of the surpluses during injection season. However, Appalachian gas production so far in 2021 has been averaging higher than last year; and, gas prices are higher year-on-year, reducing prospects for the kinds of producer curtailments we saw last year. As for the “pull” from downstream demand, LNG exports along the Gulf Coast aren’t expected to experience the slump from cargo cancellations seen last summer. In other words, Appalachia’s outbound flows are likely to be robust, setting the stage for takeaway constraints and weak prices, particularly during the spring and fall shoulder seasons. How much outbound capacity currently exists and how much room is there for growth? Today, we continue our series on the Northeast gas market with an update on Appalachia’s southbound takeaway capacity and outflows, starting with a detailed look at the gas moving to the Southeast and to the Gulf Coast.

Despite pipeline takeaway constraints being relieved this year, Northeast natural gas prices have averaged lower than last year through much of the injection season. They’ve been especially weak in recent weeks, with spot prices at Appalachia’s Dominion South hub averaging $1.27/MMBtu in October to date, which is about half of where they stood this time in 2018 and the lowest in two years. And earlier this month, on October 4, regional prices went into apocalyptic territory, plunging 30-50% to less than $1/MMBtu — reminiscent of the deep discounts of recent years when Marcellus/Utica producers were operating under severe pipeline constraints. Prices rebounded the very next trading day, but they remain depressed relative to last year. Today, we look at the fundamentals behind the recent price weakness. Starting today, you can also tune into an audio version of the current day’s blog. Click here to find out how to subscribe or start listening by clicking on the play button above.

In a world where Marcellus/Utica natural gas supplies and Gulf Coast gas demand are increasingly interdependent, what would happen if flows along a critical route connecting the two regions were disrupted? The market caught a glimpse of that on January 21, when an explosion on Texas Eastern Transmission’s 30-inch line in Noble County, OH, shut down flows through its Berne compressor, which serves as a key gateway for Gulf Coast-bound gas out of Appalachia. Partial service was restored a few days later, but a chunk of the capacity remains offline as repairs are completed, and southbound volumes are running at 60% of what they were prior to the outage. Not too long ago, an outage severing Northeast producers’ access to a major takeaway route to the Gulf would have hammered Northeast supply prices, even during the peak winter demand months. But as expansion projects have vastly improved pipeline connectivity within Appalachia and takeaway capacity out of the region, they’ve transformed how some of those legacy long-haul pipelines function and even the role they play in the market. The TETCO outage provides a glimpse into what that will mean for the Northeast and its downstream markets. In today’s blog, we begin a series looking at the implications of a well-connected Marcellus/Utica, starting with a recap of the TETCO event and its immediate impacts on southbound flows.