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Headed for Heartbreak, Part 2 - The Northeast Gas Market's Slow March Toward More Takeaway Constraints

Despite Northeast natural gas producers battling stiff headwinds last year — the lower rig count, sub-$1.50/MMBtu spot prices, lower demand, and price-responsive shut-ins in the shoulder periods — Northeast gas production volumes still managed to hit record highs in 2020, both for daily output as well as on an annual average basis. Regional production flows averaged 32 Bcf/d in 2020, up from 31.3 Bcf/d in 2019, and daily pipeline flow data shows volumes sustained year-on-year gains through January 2021. Today, we continue our series on the Northeast gas market fundamentals, this time with a sharper focus on production trends.

In Part 1, we put forth the thesis that the Northeast gas market is apt to see worsening takeaway constraints within five years, seasonally at first and potentially year-round by the latter part of that time frame. We will come back to that premise and our forecast later in the series, but to set the stage, we kicked off this blog series by first looking back at 2020, which provided a glimpse of the demand and takeaway constraints in store for Northeast producers. Producers entered 2020 with nearly 30% fewer rigs operating than at the start of 2019. On top of that, they implemented two rounds of price-driven production cutbacks, one in the spring shoulder season and again in the fall (dashed yellow rectangle in Figure 1). Nevertheless, production volumes last year still posted year-on-year gains for 10 months out of the year (navy-blue vs. gray line). 

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