Flows – East Daley’s pipeline samples covering the ArkLaTex Basin have been increasing in February despite falling natural gas prices. The gains could reflect favorable hedging by producers, though lost demand from the Freeport LNG facility in Texas also could be skewing samples.
So far in February, the ArkLaTex sample is up 487 MMcf/d over January flows, and 354 MMcf/d over the December average. Pipeline samples in January were depressed by freeze-offs caused by Winter Storm Heather, but the apparent growth in the ArkLaTex sample since December is surprising given that prices have fallen below $2/MMBtu this month.
Samples for DT Midstream’s (DTM) Blue Union system are at an all-time high of 1.33 Bcf/d in February, up 140 MMcf/d over January volumes. Most of these volumes are feeding the Texas Eastern system via LEAP at an interconnect near Gillis, LA. Energy Transfer’s (ET) Enable Haynesville gathering system is up nearly 250 MMcf/d M-o-M to a record high of 1.6 Bcf/d. Several other systems are up slightly M-o-M, offsetting declines on the ET-owned Regency Intrastate Gas system and Williams’ (WMB) Magnolia system.
Haynesville pipeline samples in Louisiana and East Texas capture a relatively high share of regional production. In 2023, East Daley’s Haynesville Louisiana sample has correlated to ~74% of production reported by EIA, up from 71% on average in 2022. The results are not what we would expect given that 0.4 Bcf/d of new intrastate capacity opened up on Enterprise Products’ (EPD) Acadian system in April ’23, pulling volumes off interstate pipes and reducing pipeline visibility.
Lower demand from the Freeport LNG facility could be skewing samples. Winter Storm Heather’s cold snap took a liquefaction train offline at Freeport in mid-January, and since then feedgas deliveries to the facility have fallen over 700 MMcf/d. It is possible that shippers are redirecting gas previously flowing south out of Carthage on Texas intrastate pipes through Louisiana pipelines. However, we have not found a ‘smoking gun’ for this theory and are therefore inclined to trust the uptick in the sample.
Given historical rig trends and the growth in DTM – Blue Union and ET – Enable Haynesville samples, East Daley believes Southwestern Energy (SWN) and Chesapeake Energy (CHK) are behind the recent gains. SWN drills almost exclusively on the Blue Union and Enable gathering systems, while CHK is active on the Enable system. We suspect these producers aren’t worried about sub-$2 gas, at least for the time being, due to robust hedging programs. Over 80% of SWN’s 2024 natural gas production is hedged through fixed-price swaps at $3.54/MMBtu. Our working hypothesis is that several of these large E&Ps are so well hedged that they can grow production through low prices, contributing to oversupply in the market.
The gains in the Hayensville sample come as other major gas basins have declined in February (see table above). The Haynesville could be different, as it is the only pure gas play with a slew of new pipeline capacity coming online in recent months, including 400 MMcf/d on Acadian and 700 MMcf/d from DTM’s LEAP expansion. More than 4 Bcf/d of new LNG demand is also on the horizon when Plaquemines Phase 1 and Golden Pass LNG begin to ramp by the end of 2024.
East Daley’s January ArkLaTex Basin Supply and Demand Forecast models minor production declines, from 16.8 Bcf/d in January down to 16.6 Bcf/d in July ’24. However, we are likely to raise our outlook based on recent activity in the basin.
Infrastructure - Several utilities have reached supply agreements with Constellation Energy (CEG) in a bid to keep the company’s Everett LNG import terminal in service in New England.
National Grid, Eversource, and NSTAR Gas Co. have petitioned Massachusetts regulators seeking approval of new gas contracts with Constellation. The agreements filed with the Massachusetts Department of Public Utilities total 62 MMcf/d of peaking services from the Everett terminal near Boston.
Constellation in 2023 warned it may need to shut the Everett LNG terminal after losing its main customer, the nearby Mystic Generating Station. The Mystic plant is set to retire in May 2024 as part of a state target to transition off fossil fuels. The new supply agreements follow negotiations with CEG to replace the lost load at Everett.
In addition to supplying the Mystic plant, the Everett LNG terminal delivers gas into the Algonquin pipeline system and plays a key role maintaining reliability during periods of high demand. Following the CEG announcement, the ISO New England analyzed how the closure of the Everett terminal would affect regional energy markets. The analysis concluded that New England is vulnerable to energy shortfalls during the winter without the peaking supply offered by Everett.
Despite abundant Marcellus and Utica gas production nearby, limited pipeline capacity into New England leaves the region exposed to price spikes during periods of high demand. For example, Algonquin citygate prices spiked to $17.21/MMBtu on January 17 amid frigid weather. Due to these constraints, New England relies on imports from the Canaport (Repsol), Everett (Constellation) and Northeast Gateway (Excelerate) LNG terminals to meet regional demand.
Storage – Traders expect the Energy Information Administration (EIA) to post a withdrawal of 69 Bcf from working gas storage for the week ending February 1. Inventories would fall to 2,515 Bcf for the week, in line with East Daley’s forecast in the monthly Macro Gas Supply and Demand Forecast.
The storage surplus to the 5-year average would increase to a whopping 397 Bcf as a bearish report loosens the balances for a third week in a row. The surplus to the 5-year average has increased by 255 Bcf (45%) over the past two EIA report. The market has responded accordingly, selling off the March Henry Hub contract to an ultra-low $1.67/MMBtu on Tuesday (February 13). The March contract fell again Wednesday, trading $0.08 lower to $1.609.
The lack of wintry weather in forecasts is contributing to weakness in spot prices and the March front-month contract. The forecast for the period February 17-21 has warmed in the past week with only a few days of above-normal gas-weighted heating degree days (GWHDDs) expected. The balance of February shows below-normal GWHDDs similar to mild temperatures at the beginning of the winter.
Rigs – US rigs decreased by 5 for the February 4 week to bring the total count to 600. The Permian and Anadarko basins are both down 2 rigs while the ArkLaTex gained 1 rig.
On the midstream side, Energy Transfer (ET) is down 5 rigs with losses on its Permian, Eagle Ford and Anadarko systems. Kinetik (KNTK) is down 2 rigs on its Permian system. Targa Resources (TRGP) is up 2 rigs on its Permian and Eagle Ford systems. Western Midstream Partners (WES) gained 2 rigs on its Delaware and Eagle Ford systems.
East Daley’s weekly Midstream Activity Tracker monitors rig activity by basin and gathering and processing (G&P) system to better understand midstream impacts. We allocate rigs and monitor flows through 150+ public and privately owned G&P systems in every North American basin. Reach out for more information on the Midstream Activity Tracker.