Headed for Heartbreak, Part 6 - Prospects for Severe Springtime Gas Takeaway Constraints in Appalachia

Outbound natural gas flows from Appalachia over the weekend hit a new record high of 17.3 Bcf/d and averaged 16.7 Bcf/d for April — an all-time high for any month. That’s despite pipeline maintenance season being well underway last month and intermittently curtailing production and outflow capacity. Utilization rates of takeaway pipelines from the region are soaring above 90%, with little more than 1 Bcf/d of spare exit capacity for outflows of surplus Northeast production. Whether that will be enough to stave off severe constraints and discounted pricing in Appalachia in what’s left of the spring season, and again in the fall will depend on how much surplus gas is left after meeting in-region consumption and storage refill requirements. What happens when seasonal demand declines occur in May and June? In today’s blog, we wrap up our analysis of current outbound capacity utilization and where that leaves the Northeast gas market this spring.

This is Part 6 of our blog series providing an update on Appalachian gas market fundamentals. As we said in Part 1, Northeast gas production growth in 2020 contributed to increased takeaway constraints, particularly during the low-demand fall shoulder season, when storage levels also soared. This happened despite producers implementing real-time shut-ins in response to uneconomic prices. The result was weaker Appalachia basis differentials in 2020 vs. 2019. In Part 2, we delved deeper into Appalachian production and the disparate patterns emerging in each of the sub-regions. While production in Ohio is at the lowest level in three years, other regions within the Marcellus/Utica play have been trending near their historical highs or even setting new records.

In the next several episodes of the series, we built upon the production story and focused on what that has meant for the region’s outbound flows and takeaway capacity utilization. Speaking of records, we started with a bang in Part 3 with a look at record outflows during Winter Storm Uri in February. Following that obligatory response to exceptional market events, a few weeks ago we got back on track and in Part 4, we began a pipe-by-pipe analysis of Appalachia’s supply takeaway routes, starting with utilization on the six pipelines that make up the Southeast and Gulf Coast corridors. From that, we concluded that utilization rates along those routes have been high. As of late March, they were already approaching 90% of the combined 10.4 Bcf/d of their capacity. In April, these southbound flows increased further, averaging 9.7 Bcf/d, or 93% of capacity, and leaving just 700 MMcf/d of spare exit capacity as we head into the lowest demand months for the Northeast (May and June).

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