Unchain My Heart - Is the Northeast Natural Gas Market No Longer Pipeline Capacity Constrained?

Natural gas production growth in the U.S. Northeast—the primary driver of U.S. production growth in recent years—has slowed dramatically in the past few months, up no more than 1 Bcf/d year-on-year, compared with growth in increments of 3 and 4 Bcf/d in previous years. Despite the slowdown, the regional balance continues to lengthen, with supply growth outpacing demand. Yet, regional gas prices, specifically at key supply hubs, which previously were struggling under the weight of oversupply coupled with limited access to growing demand markets, are strengthening. Is this the beginning of the end of takeaway constraints and distressed supply pricing in the region? Or will constraints reemerge this summer? Today, we provide an update of Northeast gas supply/demand balance.

Ever since the Marcellus Shale first took off in late 2009-10, the Northeast region has been marching toward becoming a full-fledged supplier of natural gas in the U.S. At first it grew practically unconstrained, targeting the region’s own gas-thirsty winter premium markets. By 2014, the Northeast was meeting its own regional demand through the lower-demand shoulder and summer months, but regional demand continued to outpace supply in the winter months. Then the winter of 2015-16 marked another milestone. It was the first time Northeast produced enough to meet all of its winter demand and then some. Now, dynamics are once again shifting. Regional production growth has slowed to a crawl, relatively speaking. At the same time, the region has been dealt two consecutive mild winters that have dampened demand. On the other hand, the region has added more takeaway capacity that, with production flattening out, is less constrained. What does this all mean for the Northeast gas market? We wrote about the evolving balance about a year ago in One Step Closer and looked at the fundamentals again in November 2016 in Still They Ride. We’ve since also blogged about the expansion of Tallgrass Energy’s Rockies Express Pipeline (REX) in It’s Been a Long Time Coming. But with another winter behind, injection season well under way and more takeaway capacity on the way, it’s time again to revisit the balance.

One way we track Northeast natural gas supply and demand fundamentals at RBN is using daily gas pipeline flow data from our friends at Genscape. If you’ll recall from our previous blogs on the subject (Sooner or Later and One Step Closer), pipeline flow measurement  is a collection of daily gas volumes nominated by market participants to either be received or delivered at thousands of individual meters along natural gas interstate pipelines across the U.S. Aggregated by type of connecting facility, such as gathering systems and processing plants on the supply side, and power plants, industrial plants or distribution companies on the demand side, these flows provide critical insights into supply and demand trends on a nearly real‑time (daily) basis. We begin our analysis of the Northeast gas market balance with a look at regional production.

Northeast Production