Dog Days Are Over, Part 3 - What Happened to the Northeast Gas Takeaway Constraints?

For the first time in years, natural gas takeaway capacity constraints from the Marcellus/Utica producing region appear to be easing, even as production volumes from the area continue to record new highs. That’s allowed regional supply prices this year to strengthen dramatically relative to national benchmark Henry Hub. A closer look at pipeline flow data indicates these developments stem from shifting gas flows that coincide with the ramp-up of Energy Transfer Partners’ Rover Pipeline. In today’s blog, we continue our update of the Northeast gas market with the latest on Rover’s gas receipts, along with its effects on other regional takeaway capacity and price relationships.

This is Part 3 in our series looking at recent shifts in the U.S. Northeast’s natural gas market. In Part 1, we started with a macro look at the critical role the Northeast gas production continues to play in the overall U.S. supply-demand picture. 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. Moreover, given that the Northeast produces much more gas than it needs, the bulk of that incremental supply has flowed out of the region to other markets, including the Midwest and Gulf Coast states. Marcellus/Utica volumes have more than doubled in the five years since 2013, climbing by 16 Bcf/d to an average of 28 Bcf/d in 2018 to date, up from about 12 Bcf/d in 2013.

Until now, production has continued to outpace takeaway capacity, with incremental production volumes quickly inundating any available space on the pipes and keeping supply-area prices at severe discounts compared to other markets (see Living in Fast Forward Curves). However, as we discussed in Part 2, that imbalance has seen a dramatic — albeit partial — correction this year. Even as Marcellus/Utica supply continues to set record highs this summer, prices at Dominion South (Dom S) — the representative pricing hub — have strengthened compared to prior years. After tanking to more than $1/MMBtu discounts versus Henry Hub each of the past four summers, Dom S cash prices this July and August averaged less than $0.40/MMBtu behind Henry.