Just two years ago, severe transportation constraints and steep price discounts were part and parcel of the Northeast natural gas market. Midstreamers were racing to add much-needed pipeline capacity out of the region, but not fast enough for producers. It was an inevitability that any pipeline expansions would instantaneously fill up. Gas production records were an almost monthly or weekly occurrence, and just as unrelenting were the takeaway constraints and pressure on the region’s supply prices. Not so today. Northeast gas production in June posted a record high, with the monthly average exceeding 31 Bcf/d for the first time. Yet, June spot prices at Dominion South, Appalachia’s representative supply hub, were the strongest they’ve been in six years relative to national benchmark Henry Hub. Why? The spate of pipeline expansions and additions in the past two years have not only caught up to production but capacity now far outpaces it, and consequently, producers now have something they haven’t had in a long time — optionality. Today, we break down how much spare capacity is available and its effect on regional pricing.
In this series, we’ve been analyzing the new reality that’s taken shape in the Northeast natural gas market in the past year. Ever since 2013, when the region’s supply began exceeding demand, producers have been squeezing gas out through any available outbound pipeline capacity in order to access interregional demand. As a result, the Northeast’s gas flow and pricing dynamics have been defined by takeaway constraints, with flows perpetually hitting capacity limits and supply hub prices getting knocked down. But as we recounted in Part 1, after many years and dozens of pipeline reversals, expansions and greenfield projects, takeaway capacity out of the region has finally caught up to and is outpacing Marcellus/Utica production growth, at least for now. What does this new dynamic mean for the region’s supply hub prices, and how long might it be before production again outgrows takeaway capacity and constraint-driven prices return?
To get a better understanding of where takeaway capacity stands relative to flows currently and what that means for pricing, in Part 2 we dived into a pipe-by-pipe assessment of the utilization rates on the various transportation outlets out of the Northeast. We started with the routes we consider as part of the Northeast-to-Midwest and Northeast-to-Canada transportation corridors (see Part 1 for a schematic of the outbound corridors as we define them). Then, in Part 3, we looked at the pipes moving Marcellus/Utica gas to the Gulf Coast via the Ohio-to-Gulf and Southeast/Atlantic corridors. These corridors have seen upticks in capacity as pipeline projects have been completed, and flows have trended higher as well but not quite as much as capacity. Overall pipeline utilization has declined due to a combination of the capacity additions and relatively flat production levels since late 2018.