Will It Go Round in Circles? - MVP's Prospects Improve, But Will It Be Enough?

Production bottlenecks and global energy security concerns stemming from the Ukraine war have flipped the script on various aspects of the U.S. energy markets. One of them is the softening of Wall Street and regulatory resistance to investment in new hydrocarbon infrastructure. That’s been particularly good news for the swarm of LNG export projects looking to move forward. It’s also improved somewhat the prospects for the embattled Mountain Valley Pipeline (MVP), the last major greenfield project for moving natural gas out of the Northeast from the Appalachian Basin. A court vacated three of the project’s key federal authorizations earlier this year, but the project recently got a greenlight when the Federal Regulatory Energy Commission (FERC) approved MVP’s amendment certificate application. Equitrans Midstream said last week that it would pursue new permits and target in-service in the second half of 2023. But the prospect of more legal challenges looms, and the question is, will it get across the finish line before severe constraints arise? In today’s RBN blog, we provide an update on the Appalachian gas market.

The Appalachia production basin has long been bedeviled by midstream constraints, often leading to deep price discounts vs. the national gas benchmark Henry Hub. There have been brief respites when new capacity has come online, allowing more gas to flow out, but if you've been reading our blogs and natural gas reports lately, you know we've been sounding the alarm about the growing specter of constraints reemerging (see our Headed for Heartbreak series). The boom in pipeline reversals, greenfield projects, and pipeline expansions out of Appalachia that characterized much of the 2010s is pretty much over, with just one major takeaway newbuild left in the region: MVP, the 2-Bcf/d greenfield pipeline from northern West Virginia to south-central Virginia.

The Ukraine war, bans on Russian energy supplies, and the related energy security concerns have all renewed political and regulatory support for U.S. gas supply and infrastructure to some extent. But environmental opposition — and the resulting legal actions against new gas infrastructure — haven’t abated, and generally speaking, it’s gotten much harder in recent years for projects offering additional capacity to gain traction, especially in the Northeast. Given that reality, in the latest round of earnings calls over the past few weeks, Appalachian producers have stuck to their disciplined stance, even in the face of the highest gas prices in years — largely opting to stay in maintenance mode until there are clear signals that the infrastructure will be there to support supply growth. That means that as constraints in getting gas out of the Northeast worsen, Appalachian production growth and outflows to growing demand markets, like LNG exports, will be largely paced by new takeaway capacity out of the basin (see Up Around the Bend, Part 3).