Dog Days Are Over, Part 2 - Have Northeast Natural Gas Supply Prices Turned a Corner?

For the first time in five years, takeaway expansions are outpacing Northeast production growth. Major natural gas takeaway capacity additions on large-diameter pipes like Tallgrass Energy’s Rockies Express Pipeline and Energy Transfer Partners’ Rover Pipeline over the past couple of years are allowing Marcellus/Utica natural gas producers to send record amounts of gas supply to the Midwest and, indirectly, to the Gulf Coast region. At the same time, there are some small pockets of unused takeaway capacity appearing on some of the legacy routes out of the region, which means that Appalachian basis levels — prices relative to Henry Hub — have risen to the strongest levels since 2013. For downstream markets like Chicago and Dawn, ON, that’s meant a flood of gas and lower prices. In today’s blog, we continue our series on the Northeast gas market with the effects of these new dynamics on gas price relationships.

For the first time in years, natural gas takeaway capacity constraints from the Marcellus/Utica producing region appear to be easing, even as production volumes from the area continue to record new highs. That’s allowed regional supply prices this year to strengthen dramatically relative to national benchmark Henry Hub. A closer look at pipeline flow data indicates these developments stem from shifting gas flows that coincide with the ramp-up of Energy Transfer Partners’ Rover Pipeline. In today’s blog, we continue our update of the Northeast gas market with the latest on Rover’s gas receipts, along with its effects on other regional takeaway capacity and price relationships.

The U.S. Northeast natural gas market has had a volatile few weeks. Regional gas production has surged, averaging 30.4 Bcf/d in the second half of October (2018), up 800 MMcf/d from the first half of the month and up nearly 1 Bcf/d from the September average. Normally (for the past several years), those kinds of supply gains, particularly in a shoulder month and during maintenance season, would have one result: Marcellus/Utica prices taking a nosedive. But that’s not exactly the case this year. Instead, Appalachian spot prices have been on a wild ride the past few weeks, swinging from barely $1.00/MMBtu (or more than $2.00/MMBtu below Henry Hub) on October 8, to over $3.00 (just $0.12 under Henry) on October 24 — the highest levels seen at this time of year since 2013, both in terms of outright prices and basis differentials to Henry Hub. The catalyst is nearly 3 Bcf/d of new takeaway capacity from the growing producing region that has been added in recent weeks, including, most recently, partial service on a brand-new route on Enbridge/DTE Energy’s 1.5-Bcf/d NEXUS Gas Transmission. What does this latest round of expansions and the resulting basis strength mean for the Northeast and its downstream gas markets? In today’s blog, we discuss highlights from our new 26-page report on evolving Northeast gas takeaway capacity utilization and additions, and their effects on price relationships.