Room at the Top, Part 2 - Northeast Gas Takeaway Capacity vs. Production In 2019

Natural gas pipeline takeaway capacity additions out of the Northeast over the past year or two, along with suppressed gas production growth in recent months, have relieved years-long and severe constraints for moving Marcellus/Utica gas out of the region and even left some takeaway pipelines less than full. That, in turn, has supported Appalachian supply prices. Basis at the Dominion South hub in the first five months of 2019 averaged just $0.26/MMBtu below Henry Hub, compared with $0.46 below in the same period last year and nearly $1.00 below back in 2015, when constraints were the norm. Today, we continue our series providing an update on pipeline utilization out of the region, and how much spare capacity is left before constraints reemerge.

In Part 1 of this series, we recapped the factors that led the Northeast natural gas market to a long-awaited (albeit only partial) correction by late 2018. After years of languishing under the pressure of persistent takeaway constraints and oversupply conditions, pipeline capacity out of the region finally caught up to and began outpacing production growth, space opened up on some pipelines and prices at the Dominion South pricing hub — representative of Appalachian supply — began improving relative to the national benchmark Henry Hub. This new chapter in the region’s supply-demand balance didn’t come out of the blue; it was the culmination of dozens of pipeline expansion projects to modify, expand and reverse flows on existing pipes and build new ones, including close to 10 Bcf/d of pipeline expansions that came online in the past two years. All told, Appalachian gas producers went into winter 2018-19 with at least 4 Bcf/d more incremental takeaway capacity than they had the previous winter. On top of that, a combination of weather-related and infrastructure issues (and likely also a shift in drilling activity — a topic for a future blog) helped keep Northeast production volumes relatively flat through the first several months of 2019, slowing the utilization ramp-up on some of the pipes. But now summer is upon us; Northeast demand is well below its winter peaks and more gas is looking to leave the region. Where does that leave takeaway capacity and utilization? Next, we dive into the specifics of the pipeline flows out of the Northeast.

The schematic in Figure 1 summarizes the various outlets for Appalachia-produced gas supply. The molecules can either be 1) consumed in the Northeast (purple circle in Figure 1); 2) liquefied and shipped as LNG (gray arrow) from Dominion Energy’s Cove Point liquefaction/export terminal, and eventually, also from Kinder Morgan’s Elba Island liquefaction/export facility; 3) or piped downstream to other regions. The direction of pipeline flows out of the region can be aggregated into four transportation “corridors”: to Canada (blue arrow), the Midwest (green arrow), Gulf Coast (red arrow) or the Southeast (orange arrow).