This past winter’s gas price spikes shined a bright light on the changing dynamics driving Eastern U.S. natural gas markets, especially the growth in gas-fired generation that is contributing to more frequent — and more severe — spikes in gas prices in the region on very cold days. There are other changes too. For one, gas is increasingly flowing from the Northeast to the Southeast as prodigious Marcellus/Utica production growth is pulled into higher-priced, higher-demand growth markets. In today’s blog, we conclude our series on ever-morphing gas markets on the U.S.’s “Right Coast” by examining how gas pipeline flows back East have changed on days besides the winter peaks, how much demand could be unlocked by forthcoming pipeline projects, and what that new demand will mean for flow and price patterns.
In Part 1 of this series, we considered what was behind the sky-high Eastern natural gas prices we saw from time to time during the winter of 2017-18. We found that regional gas demand for power generation has been strengthening, although volatile weather and gas prices can sometimes obscure this trend. And we noted that while the Marcellus and Utica production areas are proximate to the biggest East Coast demand markets, limited pipeline capacity exists between these supply and demand locations. This doesn’t affect the gas utilities in the region much, since they have firm transportation contracts that get them gas for the supply-area price plus transportation costs. But for generators relying on space-available interruptible service, it’s a different story. As a result of short capacity and a lack of firm commitments, the generators saw the spot price fly up, and a number of them had to burn expensive alternative fuels on many cold days when pipeline capacity was insufficient. They ramped up coal generation at inefficient coal plants, burned gas from imported liquefied natural gas (LNG), and even consumed substantial quantities of fuel oil. In Part 2, we disentangled competing forces in Eastern power generation and determined that, after you strip out the impact of fuel switching and gas-price volatility, (1) gas demand in the Eastern Transco Corridor has increased structurally by about 400 MMcf/d since the 2013-14 Polar Vortex winter and (2) about 120 MMcf/d of that delta is due to coal-plant retirements. [We define the Eastern Transco Corridor as the coastal states from South Carolina through New York, which comprise zones 5 and 6 on Transcontinental Gas Pipeline (Transco).] And we identified that overwhelmingly, the gas demand growth in this corridor has been concentrated in the Carolinas.
Now, in the final part of this blog series, we explore how growth in Northeast supply and Southeast generation has changed flow and price patterns on Transco, and how new pipeline projects now under construction will increase gas demand and change flows and prices next winter.