A 6 Bcf/d boost of natural gas takeaway capacity in Appalachia should relieve bottlenecks there and add support to pricing.
This blog post is related to the recent Argus webinar "Debottlenecking Appalachian gas supplies."
It is a truth universally acknowledged that Appalachia is always in want of more natural gas takeaway capacity. It is the largest gas producing area in the US by volume, after all, topping 28.7 Bcf/d last month and expected to rise to 29 Bcf/d this month. With ever-growing supplies of gas from the region’s Marcellus and Utica shales, prices near the wellhead have become increasingly suppressed amid pipeline bottlenecks, typically standing at deep discounts to US benchmark Henry Hub prices.
This year the region should get just what it wants. More than 6 Bcf/d of expansions made to shuttle gas to markets with higher demand are scheduled to come on line by the end of 2018, expanding shale takeaway volumes by about a fourth from what they were at the start of the year.
The top three expansions scheduled to begin full flows this year — the 3.25 Bcf/d Rover, 1.7 Bcf/d Atlantic Sunrise and 1.5 Bcf/d Nexus lines — will add deliverability for inexpensive Marcellus and Utica shale gas to markets in Illinois, Michigan and Canada as well as along the Atlantic seaboard and to global markets, by way of LNG exports.
But just like any compelling novel worth its salt, the story wouldn’t be complete without unforeseen conflict; a construction halt for one key project has added a little drama to our outlook.
The US Federal Energy Regulatory Commission earlier this month froze work on EQT’s 1.9 Bcf/d Mountain Valley pipeline, which was originally intended to begin full service to southern Virginia by the end of this year. (The announcement came after our recent webinar was released August 1.) FERC has backpedaled a bit on its stop work order, allowing the company to finish up in some areas. But the damage has been done in terms of project timing, as the line’s in-service date is now rescheduled for the fourth quarter of 2019.
Despite that project delay, relief may still come for Appalachia’s suppressed prices as other expansions continue to siphon gas out of the production region and send it southeast and west.
Still, we see from Argus Forwards that Dominion South prices are averaging at a wide discount to the Henry hub through the end of 2020, meaning either the support from better deliverability doesn't extend to the entire production region, or that it may not come for a few more years.