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

With the addition of new large-diameter natural gas pipelines like Energy Transfer Partners’ Rover Pipeline and Enbridge and DTE’s NEXUS Gas Transmission, the dog days of severely depressed gas prices in the U.S. Northeast will be diminishing (though not disappearing entirely), but they are just getting started for its downstream markets. After years of constrained natural gas supply growth, Northeast takeaway capacity appears to be outpacing regional production volumes more and more, and RBN’s analysis of production economics suggests that, left unconstrained, the Marcellus/Utica gas market is set to unleash an incremental 8 Bcf/d into the broader U.S. gas market by 2023, with the bulk of that volume targeting consumption in the Midwest and Gulf Coast regions. In today’s blog, we walk through our outlook for Northeast takeaway capacity and gas production, and by extension, U.S. gas supply.

For the first time in five years, takeaway expansions are outpacing Northeast production growth. Major natural gas takeaway capacity additions on large-diameter pipes like Tallgrass Energy’s Rockies Express Pipeline and Energy Transfer Partners’ Rover Pipeline over the past couple of years are allowing Marcellus/Utica natural gas producers to send record amounts of gas supply to the Midwest and, indirectly, to the Gulf Coast region. At the same time, there are some small pockets of unused takeaway capacity appearing on some of the legacy routes out of the region, which means that Appalachian basis levels — prices relative to Henry Hub — have risen to the strongest levels since 2013. For downstream markets like Chicago and Dawn, ON, that’s meant a flood of gas and lower prices. In today’s blog, we continue our series on the Northeast gas market with the effects of these new dynamics on gas price relationships.

The Marcellus/Utica region is in the midst of a major turning point. Natural gas production from the region continues to post record highs. But regional basis differentials to Henry Hub are the strongest they’ve been at this time of year since 2013. Spot prices at Dominion South — the representative location for the overall Marcellus-Utica supply — averaged at a $0.35/MMBtu discount to Henry Hub this August, compared with a $1-plus discount to Henry in each of the past four years. The deep discounts in previous years reflected the inadequate takeaway capacity and the resulting pipeline constraints to get gas out of the region. Now, basis shifts suggest those constraints are easing somewhat — a trend that will redefine pricing relationships across the broader gas market. In today’s blog, we continue a series examining the changing flow and price dynamics in the Northeast gas market.