Waiting on the World to Change - Northeast Gas Pipeline Expansions Set to Boost Gas Production, Again

While many are getting ready for the usual trappings of fall — Halloween, Thanksgiving turkey and Black Friday sales — Northeast natural gas market participants are gearing up for their own seasonal ritual — gas pipeline takeaway expansions. Two days ago, Enbridge/DTE Energy’s 1.5-Bcf/d NEXUS Gas Transmission pipeline received approval to start partial service for nearly 1 Bcf/d of capacity. That follows Williams/Transco’s Atlantic Sunrise natural gas project, which launched service for its full 1.7 Bcf/d of southbound capacity last week (on October 6). Also last week, TransCanada/Columbia Gas Transmission was given the nod for partial service on both its Mountaineer Xpress and WB Xpress projects. Then there’s Energy Transfer’s Rover Pipeline, which is awaiting approval for its final two laterals. Combined, these projects are poised to add more than 4.0 Bcf/d of Marcellus/Utica takeaway capacity before the coldest months of winter arrive. What does that mean for the Northeast gas market this winter? Today, we provide an update on Atlantic Sunrise’s early effects and other upcoming projects completions.

We’ve been talking a lot lately — in our Dog Days Are Over? series — about Northeast supply prices and how they’re finally starting to see some semblance of a correction after years of being perpetually depressed from relentless takeaway constraints and supply congestion. Regional basis differentials (local prices relative to Henry Hub) this summer were much stronger than prior years, as pockets of open takeaway capacity opened up for moving gas out of the Marcellus/Utica producing region. From July through much of September 2018, Dominion South basis — the representative Marcellus/Utica supply price relative to Henry Hub — ranged from a discount of 24-cents/MMBtu to as much as 70-cents/MMBtu, which is much stronger than the $1-plus discounts we’ve seen in recent years.

As we demonstrated in Dog Days Are Over? Part 3, this is indicative of easing transportation constraints in the Northeast gas market. That’s not to say there won’t be short-term volatility in basis, particularly when new supply volumes coincide with lackadaisical weather-related demand, maintenance-related constraints, or regulatory and other delays to expected expansion capacity. Case in point — the basis strength we saw during the third quarter collapsed in the couple of weeks just prior to Atlantic Sunrise coming online. That’s because producers began ramping up volumes in anticipation of the in-service, but the regulatory approval came later than expected, leaving existing capacity congested in the meantime. It didn’t help that the producer ramp-up coincided with a maintenance-related shut-down of Dominion’s Cove Point LNG facility, which previously had been taking an average 600 MMcf/d out of the Northeast market. As a result, Dominion South basis in the past couple of weeks reverted to the notoriously deep, $1-plus discounts to Henry that it’s been known for in recent years and widened to as much as negative-$2.08 last Friday (October 5). Similarly, basis at the Tennessee Zone 4 — which is more indicative of Marcellus gas receipts in Pennsylvania, in particular — blew out to as much as negative-$2.23 for gas day September 28 (2018).

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