Despite pipeline takeaway constraints being relieved this year, Northeast natural gas prices have averaged lower than last year through much of the injection season. They’ve been especially weak in recent weeks, with spot prices at Appalachia’s Dominion South hub averaging $1.27/MMBtu in October to date, which is about half of where they stood this time in 2018 and the lowest in two years. And earlier this month, on October 4, regional prices went into apocalyptic territory, plunging 30-50% to less than $1/MMBtu — reminiscent of the deep discounts of recent years when Marcellus/Utica producers were operating under severe pipeline constraints. Prices rebounded the very next trading day, but they remain depressed relative to last year. Today, we look at the fundamentals behind the recent price weakness. Starting today, you can also tune into an audio version of the current day’s blog. Click here to find out how to subscribe or start listening by clicking on the play button above.
Northeast producers came into 2019 with the most favorable market conditions they had seen in a while. After years of perpetual transportation constraints and restricted access to downstream markets, the Marcellus/Utica producing region finally had surplus pipeline takeaway capacity to flow gas out of the region. With sufficient takeaway capacity in place, the Northeast gas market could balance its excess gas supply without sending prices into the abyss. As a result, regional supply prices had strengthened relative to the national benchmark Henry Hub in Louisiana and other downstream markets. And, as we concluded in our Room at the Top blog series, it likely would be a few years before production growth again outpaced pipeline capacity and distressed supply pricing returned, particularly if crude oil and gas forward curve prices continued to signal belt-tightening among producers.
All in all, 2019 was set up to be a telling year for how this new “unconstrained” market would play out in the interim. And, as we said in that same early-summer blog series, the real test for the Northeast’s supply-demand balancing act would come during the low-demand months, typically spring and fall, when Northeast demand is at its lowest and the region is even more dependent on outflows to balance. That’s also the time when pipelines tend to schedule maintenance, which can periodically reduce available takeaway capacity.
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