Dog Days Are Over - The Northeast's Changing Role as U.S. Natural Gas Supplier

The U.S. Northeast’s reign on natural gas supply growth has factored heavily into broader U.S. gas supply-demand dynamics ever since the Marcellus/Utica shales burst onto the production scene. This year is no different. Lower-48 gas production in 2018 to date has averaged 8 Bcf/d higher year-on-year. Nearly 50% of that growth has come from the Northeast, and, what's more, the bulk of that incremental supply has flowed out of that region, flooding markets in neighboring areas. Now, the Marcellus/Utica is in the midst of yet another major inflection point. After years of perpetual pipeline constraints, pipeline utilization data indicates that some Northeast takeaway pipelines have a little bit of capacity to spare — a trend that has major implications for regional pricing relative to downstream markets. At the same time, more pipeline expansions are on the horizon that promise to bring on even more gas supply from Marcellus/Utica producers. (Just last Thursday, Energy Transfer’s Rover Pipeline was approved to begin service on two additional supply laterals — Majorsville and Burgettstown — and Williams’s Atlantic Sunrise expansion of Transco Pipeline is due for completion within weeks.) What does this new reality look like and what does it mean for the broader U.S. gas market? Today, we begin a short series providing our latest analysis of the Northeast gas market, starting with how it fits into the current U.S. supply-demand picture.

To fully grasp the Northeast’s influence on the macro U.S. gas market, it’s worth first putting it in the context of the current gas supply-demand balance. Few would disagree that the single most striking feature of the 2018 gas market has been the rampant supply growth that’s happened over the past six months or so, as shown by the red 2018 production line in Figure 1 below, based on data from RBN’s NATGAS Billboard daily gas supply-demand report.

After rallying in the second half of 2017 to more than 77 Bcf/d by December, dry gas production in the Lower 48 started 2018 well below that level and then spent the better part of January and February recovering from that dip. But production finished February 2018 on average at a record 77.7 Bcf/d, marking the first of a series of record-setting months. Monthly average volumes have climbed nearly 4.5 Bcf/d since then — an average of 700 MMcf/d per month — to just above 82 Bcf/d in August to date. The growth pace has accelerated in the past couple of months, with volumes increasing by more than 1 Bcf/d in July and August to date, and producers show no signs of slowing down (see Sky’s the Limit Part 1). Case in point:  The most recent record of 83.6 Bcf/d was set just two days ago (August 27).