Living in Fast Forward Curves – Doing the Midwest Natural Gas Supply Stack Shuffle

An average of 13 Bcf/d of natural gas flows into the Midwest from producing regions in Canada, the Midcontinent, the Southeast and the Rockies. Over the past 7 years the region has been in the crosshairs of major infrastructure and supply changes to the North American natural gas market, starting in 2008 with the Rockies Express (REX) pipeline and continuing today as surplus Northeast supplies reverse pipeline flows and push into the Midcontinent. Today we begin our look at rapidly evolving fundamentals in the Midwest by describing changing supply sources.

This is Part 6 in our natural gas forward curve series. Part 1 provided a definition of forward curves and how they work. Part 2 and Part 3 dove into two Northeast gas markets – Transco Zone 6 in New York and Dominion South in Appalachia – examining how their forward curves have been reshaped by the shale revolution and assessing the resulting transformation of the Northeast gas market from a net demand region to a net supply region. In Part 4, we previewed the fundamental drivers influencing Northeast forward curves for the next several years. And, finally, Part 5 dissected the timing of these fundamental changes, how they correlate to current Northeast forward curves and what they indicate about when regional natural gas prices may begin to recover.

The bottom line is that the Marcellus really is about to change everything. So far the full impact of the supply growth has been somewhat contained to the Northeast by limited takeaway capacity. But when surplus northeast supplies begin to target outside regions, the Midwest will be one of the first to feel the pinch, with the first wave coming as early as this summer. Today we begin our look at what this all means for Midwest gas prices.

As with the Northeast sections in this series, we start with an overview of the Midwest gas market. We look at how fundamentals and spot prices in the region have evolved in recent years and next time we will examine the forward curves and what they tell us about what may be ahead. Figure 1 below shows the major trading hubs in the Midwest. 

Three of the major points for Canadian inflows are (a) Emerson, Manitoba where the Viking system brings gas down to Marshfield, WI, (b) the Northern Border, Ventura, IA hub where Canadian gas on that system then makes its way over to Chicago, the granddaddy of Midwest gas trading hubs, and (c) Alliance which brings gas into the Aux Sable processing plant, also near Chicago.  Another important regional hub is ANR ML7, the Chicago market region of the ANR pipeline system which has traditionally moved gas into the region from Oklahoma and Louisiana.  There are several pipelines that feed Chicago markets that collectively make up the Chicago Citygate points.  Further east are Consumers Energy in Michigan, MichCon also in Michigan, and Dawn, Ontario, site of Canada’s largest natural gas storage facility near Detroit (owned by Union Gas, a unit of Spectra).

Midwest Gas Market Overview