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Why Mountain Valley Pipeline Creates Phantom Takeaway

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The Daley Note: June 21, 2023

On paper, the massive Mountain Valley Pipeline (MVP) has the potential to open new markets for Marcellus and Utica shale producers out of the Appalachia Basin. However, due to downstream constraints, East Daley Analytics anticipates MVP will run below half its capacity of 2 Bcf/d when the project is finally built.

Developer EQT Midstream (ETRN) has faced numerous delays moving MVP to completion since the project’s original 2018 start-up target. While new federal legislation has thrown MVP a lifeline, the pipeline would enter a changed natural gas market, leading to questions about its impacts on prices and flows in the Northeast region.

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East Daley’s view is that MVP would have limited impact on Dominion South pricing and Appalachian production growth because the pipeline will not be able to run full. MVP would terminate at Station 165 of the Transcontinental Gas Pipe Line (Transco) system in southern Virginia, sending gas into the Transco Zone 5 market serving the Southeast. However, Transco has limited takeaway at the Zone 5 interconnect, preventing the system from receiving the full 2 Bcf/d potential of MVP without driving prices below those within the Appalachia Basin.

In our Northeast Supply & Demand Forecast, East Daley forecasts average throughput of ~700 MMcf/d when MVP is completed, or 35% utilization. Transco, owned by Williams (WMB), is effectively the only pipeline that can connect MVP shippers to end-users. The problem is Transco is fully contracted and often runs at or near capacity, leaving little room for the influx of gas from MVP.

We predict MVP would marginally benefit Dominion South pricing, but its main impact would be to cap upward price pressure at Transco Zone 5, particularly during winter or summer demand spikes. The Transco Zone 5 market is short gas during periods of high demand, and MVP will be able to bridge that seasonal gap. As a result, MVP would narrow the spread between Dominion South and Transco Zone 5 prices.

The proposed Southgate extension would add ~500 MMcf/d of egress from Transco Zone 5, which would boost volumes that MVP can ship to the region. However, the Southgate project has been placed on indefinite hold after the denial of an air quality permit. It may be possible for WMB to loop a portion of the Transco system to alleviate the constraint as well. – Alex Gafford Tickers: ETRN, WMB.



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