It’s no secret to anybody paying attention to U.S. natural gas markets that Appalachia has long been bedeviled by midstream constraints, often leading to deep gas price discounts. There have been brief respites when new capacity has come online, allowing more gas to flow out, but if you've been reading our blogs and natural gas reports lately, you know we've been sounding the alarm about the growing specter of constraints reemerging. Across the country, the boom in pipeline reversals, greenfield projects, and pipeline expansions that characterized much of the 2010s is pretty much over, with just a couple of approved expansions left, and it’s gotten much harder for projects offering additional capacity to gain traction, especially in the Northeast. In today’s RBN blog, we consider the big questions facing the region: how fast will Appalachian gas production grow, how much running room do producers have left, and what are the implications of midstream constraints for forecast supply growth?
In Part 1 of this series, we discussed the threat that the “midstream conundrum” poses to U.S. gas production growth. Natural gas supplies are already butting up against capacity in parts of the Permian and Marcellus/Utica and market signals are beginning to suggest that new capacity needs to get built to handle potential volume growth — particularly with gas prices strong compared to recent years, averaging $3.70/MMBtu so far in 2021 versus $2.66/MMBtu for 2015 through 2020. In previous eras, that would have prompted producers to ramp up output and sign up for the incremental takeaway capacity needed to stave off basis discounts, but it’s not happening yet. Northeast markets, more than most, have been roiled by extreme price discounts in the supply region when egress falls short, as well as price premiums for New England, where gas prices rise high enough to encourage LNG imports.
There are a lot of reasons a new gas pipeline out of Appalachia might make sense, but Wall Street has drawn a hard line when it comes to capital and environmental discipline in the energy industry and regulatory support for hydrocarbon newbuilds has waned. That sentiment is impacting midstreamers across the U.S. and, in Part 2 of this series, we focused on the challenges faced by the midstream sector in the Permian Basin, where production is up 2.5 Bcf/d year over year. In today’s blog, we turn our attention to the Marcellus/Utica, where the midstream landscape is even more fraught.
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