A raft of natural gas pipeline projects completed in the past couple of years has — for the first time — left room to spare on most takeaway routes out of the Northeast and provided Marcellus/Utica producers a reprieve from the all-too-familiar dynamic of capacity constraints and heavily discounted supply prices, even as regional production continues achieving new record highs. There’s on average close to 4 Bcf/d of unused exit capacity currently available — more in the winter when higher in-region demand means more of the production is consumed locally and less than that (but still more than in past years) in the spring, summer and fall seasons, when greater outbound flows are needed to help offset the relatively lower Northeast demand. But we’re expecting Northeast production to grow by another 8 Bcf/d or so over the next five years. And the list of projects designed to add more exit capacity has dwindled to just a few troubled ones that, even if built, wouldn’t be enough to absorb that much incremental supply. When can we expect constraints to re-emerge? Today, we conclude this series with a look at RBN’s natural gas production forecast for the Marcellus/Utica and how that correlates to the region’s pipeline takeaway capacity over the next five years.
For years, the Northeast’s gas flows and pricing dynamics have been defined by unrelenting production growth and takeaway constraints, with flows perpetually hitting capacity limits and supply-hub prices getting knocked down. But as we discussed in Part 1 of this series, after 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. While the growth in the play’s natural gas output was modest in the first half of 2019, outright volumes are more than 4 Bcf/d above where they stood at this time last year and still setting records, with the monthly average exceeding 31 Bcf/d for the first time in June 2019. Yet, as a result of the excess pipeline capacity, 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.
To understand the fundamentals behind this new dynamic and its impact on prices, we took a detailed pipe-by-pipe approach to assessing flows, capacity and utilization rates on the various transportation outlets out of the Northeast (see Part 1 for a schematic of the outbound corridors as we define them). We started with the pipes heading to the Midwest and Canada (see Part 2), then in Part 3, we turned our attention to the pipes moving Marcellus/Utica gas to the Gulf Coast via the Ohio-to-Gulf and Southeast/Atlantic corridors. The overwhelming trend among these pipes is that just about all of them have seen upticks in capacity in the past few years as pipeline projects have been completed. Flows have trended higher as well — but not quite as much as capacity. As a result, overall pipeline utilization rates have declined.