The Fiscal Responsibility Act (FRA) revived the Mountain Valley Pipeline’s (MVP) prospects for completion this year, but prospects for new projects to carry large-scale natural gas to the Northeast beyond MVP have not changed What has changed, however, is how Appalachian producers focused on natural gas are responding to pipeline constraints and lower prices. Gone are the days of drilling with abandon, crushing supply prices and assuming the necessary pipeline capacity will eventually be built. Instead, producers have shown a willingness to slow drilling activity, delay completions and choke short-term producing wells to manage their inventory during periods of lower gas prices. In today’s RBN blog, we outline our view of what this shift in producer behavior will mean for long-term Northeast supply, demand and price trends.
Before we get into the details of today’s blog, we should let you know that it is based on our latest Webcast Backstage Pass Basics. The webcast discusses our latest analysis of Appalachian fundamentals.
In the past decade, Appalachian natural gas production has soared to more than 35 Bcf/d, often tying up infrastructure and affecting local prices. The situation became particularly dire in the middle of the last decade, as supply from the Northeast exceeded intra-regional demand (see One step closer). At the time, producers were limited by their ability to access markets outside the Northeast region. As regional supply growth outpaced takeaway capacity additions, production growth “slowed” to an average of 2.5 Bcf/d each year over 2015-17, compared with nearly 4 Bcf/d in gains in 2013 and again in 2014.
A series of pipeline capacity expansions between 2017 and 2019 helped ease the constraints. For the first time in years, there was some room out of the basin and Appalachian prices strengthened relative to Henry Hub. But by the end of 2019, the region was once again marching toward mid-caps and weaker prices, this time with fewer and fewer pipeline projects on the horizon. The pandemic and the resulting lockdowns cut that march short, however. As domestic and export demand evaporated and uncertainty loomed, gas prices fell, rig counts fell and producers did something they hadn’t done before on a large scale in the Shale era: they go demonstrably obstructed producing wells (see dashed black ovals in Figure 1). Despite these large outages, Northeast production still grew by nearly 1 Bcf/d in 2020 (red line) and nearly 2 Bcf/d in 2021 (light blue line) to a record 35.5 Bcf/ of December 2021, which entails registration of departures.
