Headed for Heartbreak, Part 4 - Will Northeast Gas Outflows to the Gulf/Southeast Max Out Capacity This Spring?

Natural gas pipeline takeaway constraints out of the Northeast worsened in 2020 despite producer cutbacks in the region as high storage levels and weaker demand led to record volumes of Appalachian gas supplies needing to find outlets in other regions last fall. This year, storage levels are lower and could absorb more of the surpluses during injection season. However, Appalachian gas production so far in 2021 has been averaging higher than last year; and, gas prices are higher year-on-year, reducing prospects for the kinds of producer curtailments we saw last year. As for the “pull” from downstream demand, LNG exports along the Gulf Coast aren’t expected to experience the slump from cargo cancellations seen last summer. In other words, Appalachia’s outbound flows are likely to be robust, setting the stage for takeaway constraints and weak prices, particularly during the spring and fall shoulder seasons. How much outbound capacity currently exists and how much room is there for growth? Today, we continue our series on the Northeast gas market with an update on Appalachia’s southbound takeaway capacity and outflows, starting with a detailed look at the gas moving to the Southeast and to the Gulf Coast.

This is Part 4 of the blog series, aimed at breaking down the fundamentals trends in the constantly evolving Appalachian gas market. In Part 1, we looked at the Northeast gas supply-demand trends that contributed to increased takeaway constraints and weaker Appalachia basis differentials in 2020, namely milder winter demand in early 2020 that led to record high storage levels, despite low rig counts and producer cutbacks in the spring and fall. Then, in Part 2, we delved deeper into Appalachian production and the disparate patterns emerging in each of the sub-regions. We shifted our focus to regional outflows and takeaway capacity utilization in Part 3, starting with a look at the record outflows during Winter Storm Uri last month. Now spring is around the corner and Northeast demand will take a big step back as heating demand fades, leaving the region swimming in surplus gas. How much exit capacity is there for that surplus gas? To understand that, we first need to take stock of existing capacity and flows.

We’ve detailed the pipeline routes and capacities for supply leaving the Northeast in our previous discussions on regional outflows in the blogosphere, but it’s worth summarizing the latest tally here. The amount of gas that can exit the Appalachia region on pipelines now totals 18.2 Bcf/d. For our analysis, we group the various takeaway pipelines into four primary corridors based on route and destination: to the Gulf, Southeast, Midwest, and Canada. Of the total capacity, about 10.4 Bcf/d is designed to move Marcellus/Utica gas southbound via the Gulf (red arrow) and Southeast (orange arrow) corridors across six pipelines. The other 7.8 Bcf/d of outbound capacity moves Appalachian gas to the Midwest/Midcontinent (green arrow) via four key pipeline routes, plus another two pipeline routes to Canada (blue arrow).