Variable Transport Cost

The U.S. Midwest region is slated to get an infusion of cheaper Northeast natural gas supply later this year as the first of five new westbound pipeline expansions is expected to begin service in November. Already a couple of projects are moving gas to the Midwest from the Northeast.  The Northeast-to-Midwest capacity will have a huge impact on the Midwest supply stack and consequently on prices. The Chicago Citygates forward curve shows prices flipping from premiums to discounts later this year. Today’s blog continues our look at how new pipeline capacity will re-shuffle the Midwest’s supply stack and change regional pricing.

Northeast natural gas prices have been flipped upside down over the last couple of years and have shown unprecedented weakness relative to Henry Hub due to capacity constraints preventing booming production reaching new demand markets.  New infrastructure projects should relieve this congestion in the next two years but as we explain today, the current market view – expressed in the forward curve - does not appear to reflect that reality.