Dog Days Are Over? - A New Drill Down Report on Northeast Gas Takeaway Capacity and Basis

The U.S. Northeast natural gas market has had a volatile few weeks. Regional gas production has surged, averaging 30.4 Bcf/d in the second half of October (2018), up 800 MMcf/d from the first half of the month and up nearly 1 Bcf/d from the September average. Normally (for the past several years), those kinds of supply gains, particularly in a shoulder month and during maintenance season, would have one result: Marcellus/Utica prices taking a nosedive. But that’s not exactly the case this year. Instead, Appalachian spot prices have been on a wild ride the past few weeks, swinging from barely $1.00/MMBtu (or more than $2.00/MMBtu below Henry Hub) on October 8, to over $3.00 (just $0.12 under Henry) on October 24 — the highest levels seen at this time of year since 2013, both in terms of outright prices and basis differentials to Henry Hub. The catalyst is nearly 3 Bcf/d of new takeaway capacity from the growing producing region that has been added in recent weeks, including, most recently, partial service on a brand-new route on Enbridge/DTE Energy’s 1.5-Bcf/d NEXUS Gas Transmission. What does this latest round of expansions and the resulting basis strength mean for the Northeast and its downstream gas markets? In today’s blog, we discuss highlights from our new 26-page report on evolving Northeast gas takeaway capacity utilization and additions, and their effects on price relationships.

For years, the U.S. Northeast gas market has been defined by rapid production growth, perpetual transportation constraints, distressed supply prices and stranded producers — a topic we’ve covered extensively in the RBN blogosphere over the years. These market conditions have had a domino effect on the broader U.S. gas market — turning a traditionally demand-driven market into a net gas supplier for the U.S., flipping regional prices on their heads and prompting massive midstream investment to reverse gas pipelines so they flow out of the burgeoning Marcellus/Utica shale.

Now, the Northeast’s role in the gas market is again on the cusp of a profound shift, led by the latest round of Marcellus/Utica takeaway expansions. After months of construction and regulatory delays, several large-capacity expansion projects have turned up the spigot in recent weeks: