The Northeast has been the biggest driver of U.S. natural gas production growth in recent years, and while rig counts have come down, output from the Marcellus and Utica has remained resilient and helped offset declines in other supply regions. In the process, the Northeast has reinvented itself, shifting from a gas-thirsty consuming region to one of the biggest gas net producing regions in the U.S. But pipeline flow data indicates that Northeast production peaked in February and growth has flattened since then. Is the data signaling a long-term peak or is this a temporary lull? Today, we continue our analysis of the Northeast supply/demand balance with a closer look at recent production trends.
This is Part 2 in our “One Step Closer” series looking at the Northeast gas supply/demand balance. In Part 1, we looked at the overall winter 2015-16 balance (regional production versus demand). As we noted, the Northeast became a net supply region on an annualized basis for the first time in 2015. The region had been marching toward this tipping point ever since drilling in the Marcellus, and later the Utica, started ramping up, with regional production climbing 3-5 Bcf/d each year the last few years. Demand was also on the rise as lower prices led to higher utilization of gas-fired power generation capacity, but not nearly at the pace of production. Initially, production outpaced demand just periodically, then on a monthly average basis for a few months of the year when demand typically is low, and eventually for all 7 months of the gas “summer” season, April through October. But the peak winter demand months continued to carry a supply deficit – until this past winter. In winter 2015-16 (November 2015-March 2016), we saw production exceed demand on a seasonal average basis for the full winter for the first time ever. Northeast production this past winter averaged about 21 Bcf/d, while regional demand averaged about 19 Bcf/d, leaving the regional balance over 2.0 Bcf/d supply long, compared to a more than 4.0-Bcf/d supply deficit in winter 2014-15, which was a somewhat colder-than-normal winter. The difference this year was that it wasn’t all due just to production growth. In fact, this winter, the market had the double-whammy of low demand (due to an exceptionally warm winter) and higher production. Winter over winter, Northeast production growth was more modest than it had in previous winters – about 2.7 Bcf/d – while demand was down nearly 4.0 Bcf/d from the winter of 2014-15.