Regional Balance

The U.S. Northeast natural gas market thus far has been able to offset local production growth primarily by pushing out supply from other regions.  But recent trends in pipeline flows suggest that for the first time, net flows into the Northeast will fall to zero this summer, marking the end of displacement. Meanwhile, regional natural gas production could be as much as 4 Bcf/d higher this summer than last. The result could put this summer’s prices in a precarious position further challenging producers suffering in an oversupplied market. . Today’s blog looks at recent trends in Northeast flows and implications for prices this summer.

The Dominion South Point strip price for the balance of 2015 (March-December) has been settling consistently under $1.90/MMBtu, while Transco Zone 6 in New York is averaging around $2.80/MMBtu in this week’s forwards market. Meanwhile, Northeast and US gas production remain near record levels. The breakeven price environment and looming oversupply leaves producers and the industry vulnerable to the downside. Where and when will prices bottom out? What, if anything, would trigger a rebound?  Today Part 4 of our Forward Curve Series, focuses on fundamental factors driving Northeast forward curves over the next few years.