For years now, limited natural gas pipeline takeaway capacity has constrained gas production growth in the Marcellus/Utica natural gas shale plays in the Northeast. To fix that, a slew of pipeline projects were planned to relieve the constraints as regional supply began outstripping demand starting in 2014. Now, the region is on the verge of being unconstrained for the first time since the Shale Revolution hit Appalachia. Many of those projects have come online since then, and another 19 expansions totaling 15.5 Bcf/d are planned for completion by late 2019. If all goes as expected, this next round of projects should turn the Northeast market on its head again, as the capacity additions should start to outpace production growth. The problem, though, is that several projects have faced significant challenges in recent months, resulting in either cancellation or major delays. At the same time, Marcellus/Utica production growth has slowed dramatically in the past 18 months or so. In today’s blog, “In a Northeast Minute…Everything Can Change — An Update of Marcellus/Utica Takeaway Projects,” Sheetal Nasta begins a series looking at the status of regional takeaway capacity expansions.
When we published our review of Northeast pipeline takeaway projects in late 2014 in the RBN Drill-Down report “50 Ways to Leave the Marcellus,” natural gas production in Appalachia had just broached 18 Bcf/d and showed no sign of slowing down. The oil price collapse was already under way, but production economics in the Marcellus/Utica remained favorable thanks to uplift in prices from the sale of natural gas liquids and condensates in the gas stream. At the time, regional gas production was beginning to exceed demand in most months of the year, and so the only real limit to production gains seemed to be the capacity of the pipeline network — originally designed to flow gas to the Northeast — to move gas to demand markets outside the region. Midstream companies were scrambling to rework their pipeline systems to handle the increasing volumes of gas needing to flow out of the Northeast. More than 50 pipeline projects were under development in and around the Marcellus/Utica, 41 of them specifically to increase takeaway capacity by 28 Bcf/d.
Based on the expansion projects’ target in-service dates and our production growth projections at the time, we estimated that takeaway capacity out of the Northeast as a whole would begin to exceed local production levels as early as 2018. Now we’re nearing that period, and a lot has happened since then. A number of the proposed projects have come online. Appalachia production has climbed by more than 5 Bcf/d since then. And Northeast gas outflows to other U.S. regions and exports to Canada combined are the highest they’ve ever been.
As we showed in Unchain My Heart, gas production growth in the Marcellus/Utica has slowed dramatically in the last 18 months or so due to a combination of pipeline takeaway capacity constraints, lower oil prices that squeezed producers’ drilling budgets and two consecutive mild winters that suppressed demand and resulted in high storage inventories. Marcellus/U production has been relatively more resilient than other supply regions, continuing to grow through much of the downturn, but ultimately also flattening in recent months. Overall production volumes from the Appalachia are near record-highs, but year-on-year production growth has slowed from 4.5 Bcf/d in 2014 to only 1.0 Bcf/d this year to date. And, despite the addition of 0.8 Bcf/d of incremental takeaway capacity from Ohio on Tallgrass Energy’s Rockies Express Pipeline (REX) in December 2016/early January 2017, total Appalachia production has grown little more than 0.4 Bcf/d since then.
Despite little production growth in recent months, however, the 1.0-Bcf production growth year-on-year coupled with the mild weather this year to date has meant that the region’s supply/demand balance (production minus total demand) has been decidedly more bearish compared to last year, with excess supply in the market. As a result, outbound flows from the Northeast have continued to grow. Figure 1 shows the net volume of gas moving in and out of the region, based on pipeline nomination data from our good friends at PointLogic Energy. Positive volumes in the graph reflect net inbound flows, while negative volumes are net outbound. As the blue line shows, back in 2014, more gas was moving into the region than out, and net inflows averaged positive 1.4 Bcf/d. By 2015, those volumes flipped to an average of nearly 0.8 Bcf/d in net outflows, which then jumped to more than 3.0 Bcf/d in in 2016. This year-to-date, net volumes are averaging about 6.5 Bcf/d outbound and in April alone outflows were nearly 8.0 Bcf/d.