Living in Fast Forward Curves – Following the Northeast – Dominion South

The NYMEX gas futures curve for 2015 was sitting right at $3.00/MMBtu yesterday (January 27, 2015) as colder weather has halted it’s recent slide. This still puts outright prices in the Northeast gas forward curve in dangerous territory for producers – very close to breakeven levels – through 2015 and not much higher even beyond this year. With NGL prices no longer supporting drilling activity for many producers in the region, the gas forwards market is becoming a bigger factor in signaling producers’ drilling prospects. Today in Part 3 of our Forward Curve Series, we continue our look at Northeast forward curves, with a focus on the Dominion South Point price hub, its historical shape and the fundamentals behind where it stands now.

This is Part 3 in our natural gas forward curve series. In Part 1 we explained natural gas forward markets and defined a forward curve. We also reviewed some of the trading mechanics and relationships associated with the US gas forwards market including seasonality and the supply demand dynamics of individual hubs. In Part 2 we detailed the Northeast’s transformation from being the gas taker with the highest prices in the country into a supply-saturated market with some of the lowest prices in the U.S. as a result of prolific drilling activity in the Marcellus and Utica shales. So now while Northeast demand is growing – it is more than matched by surging supply. In winter, Northeast producers have to discount prices enough to disincentivize an influx of supply from other regions and in the summer they need to seek out new markets outside the region to soak up excess production. Pipeline infrastructure has not caught up to this new dynamic, with most capacity still geared toward bringing gas north and east from other U.S. regions. We took a closer look at the impact of these changes on forward curves at Transco Zone 6 New York trading hub. This time we look at another representative Northeast hub, Dominion South Point, a large, load-serving pipeline network across Central Appalachia.