Eastern Gas (formerly Dominion) South Prices have rallied this year as production curtailments have led to improved egress capacity. However, a sharp return of some production over the past month has led prices to deteriorate once again.
Recent Situation – The seasonal strip chart below is a great tool to see how prices reacted following recent announcements. Note: We use Eastern Gas to discuss price action in Appalachia, serving as a proxy to other named hubs.
Price
June 11, 2024 - Prompt Eastern Gas basis prices have continued to come off amid rebounding production in the region. The later tenors have been mostly stable and are still materially higher than they were several months ago.
Appalachian production has fallen in 2024, driven by a combination of seasonal declines and producers shutting in wells due to weak pricing. EQT, one of the largest producers in the region, has taken 1 Bcf/d offline until the pricing environment improves. Production bounced back in late May and early June, which has correlated with deteriorating basis prices and lower egress capacity.
Another factor affecting the future of pricing in the Appalachian region is the completion of the Mountain Valley Pipeline. At first glance, an in-service MVP, that will have a capacity of 2 Bcf/d, should improve basis pricing. However, upon further analysis, there seems to be downstream constraints on the Transco mainline that will not allow MVP to flow at its full potential until upgrades are made over the next few years.
The forward curve reflects the reality that MVP will have little initial impact. The smaller incremental egress gains provided by MVP's future in-service will likely be quickly back filled with supply - returning the basis to its current steady state.
Price Location: Eastern Gas (Dominion) South
The Eastern Gas (Dominion) South point is located in the Appalachian Basin, near Pittsburgh, PA, and serves as a liquid proxy for Northeast gas basis. The Northeast gas market has undergone dramatic changes over the last several years. The pipeline map shows the different corridors out of the Appalachian basin as well as the Eastern Gas (Dominion) South pricing point. The shaded circle is where the bulk of the Appalachian supply is located.
Market Influences
The in-service dates for the pipelines in the chart above were compiled using each company's investor presentations.
The main pipeline that was supposed to bring additional capacity, the Mountain Valley Pipeline, is not expected to come online until the end of 2023, after multiple years of delays. The chart above shows the currently existing and planned egress capacity. There are several different production forecasts, but analysts' general expectation is that Appalachian production will likely stay flat or decline.
The basin's supply base has been growing rapidly for the last ten years and is finally showing signs of depletion or at least slowing production growth.
Recent Infrastructure Announcements
Mountain Valley Pipeline – The pipe will begin filling with gas this month (June 2024) and is expected to start commercial service as well.
The Mountain Valley Pipeline (MVP) project is a natural gas pipeline system that spans approximately 303 miles from northwestern West Virginia to southern Virginia and will bring nearly 2 Bcf/d of takeaway capacity from the Appalachian basin to the mid-Atlantic markets. The pipeline has faced numerous court challenges throughout its life, which is why it is now two years beyond the original in-service date of 4Q2018. MVP will not flow at full capacity until downstream constraints on the Transcontinental pipeline are alleviated over the next few years.
PennEast Pipeline - Cancelled
Regional Energy Access Pipeline - Williams announced that the Regional Energy Access Pipeline is on track to enter in-service during the fourth quarter of 2024. The 829-MMcf/d pipeline will help serve residential, commercial, and power demand in Pennsylvania, New Jersey, and Maryland.