Natural Gas Weekly: April 3, 2024
Infrastructure – National Fuel Gas (NFG) recently received a favorable ruling for its Northern Access pipeline project that could open new takeaway from the Appalachian Basin. The US Court of Appeals for the District of Columbia granted NFG an extension to complete the pipeline project by December 31, 2024.
Northern Access consists of ~100 miles of new pipeline from Sergeant Township, PA to the Porterville compressor station near Elma, NY. The project will provide 500 MMcf/d of transportation from the Marcellus producing area in McKean County, PA in northeastern Pennsylvania, including potential delivery of 350 MMcf/d into Empire Pipeline and 150 MMcf/d into Tennessee Gas Pipeline (TGP).
NFG will also expand Empire Pipeline as part of the project, adding compression to increase capacity by ~350 MMcf/d for delivery into TC Energy’s (TRP) Canadian Mainline at the border crossing in Erie County, NY. Seneca Resources, NFG’s E&P subsidiary, has subscribed to all of the project’s capacity under a 2014 contract.
If completed, EDA expects Northern Access to add at least 350 MMcf/d of meaningful egress from the Appalachian Basin, allowing Pennsylvania production to grow to a higher ceiling. Although TGP is not expanding its own pipeline facilities, the project will enable more Appalachian gas to compete with Canadian supply received by TGP at the Niagara border point.
While Mountain Valley Pipeline (MVP) has received the lion’s share of public attention, NFG’s project has faced similar delays obtaining federal permits, including the Section 401 water quality certification and a Section 404 permit from the US Army Corps of Engineers. MVP’s fate is more certain after an intervention by Congress, but Northern Access still has legal hurdles to pass to complete the project. We do not currently model Northern Access’s completion in our models.
In the latest Macro Supply and Demand Forecast, East Daley forecasts a Y-o-Y decline of ~0.5 Bcf/d in Appalachian production in 2024, down from the recent peak at YE23 (see figure). Our outlook is shaped by the disincentive of low prices and producer shut-ins. For a more detailed regional view, EDA breaks down the outlook for production, demand and pipeline flows in the Northeast Supply and Demand Forecast.
Production - – In our latest Macro Supply and Demand Forecast, EDA models Lower 48 gas production to average 103.1 Bcf/d in April ‘24, down from 103.3 Bcf/d in March. Weekly pipeline samples are roughly flat across the US for the March 31 week, providing no significant directional variance from our existing forecast.
EQT has yet to bring back its ~1 Bcf/d of shut-in production in response to low prices, accounting for most of the near-term decrease. Appalachian samples fell 1% (315 MMcf/d) W-o-W.
Eagle Ford samples fell 6.8% (99 MMcf/d) on the week. However, sample visibility is only 25% in South Texas. With ongoing pipeline maintenance in the region, gas is likely moving onto intrastate pipelines as opposed to decreased production.
The declines in the Northeast and Eagle Ford samples were offset by a 16% (299 MMcf/d) rise in offshore production within the 'Other' category. We forecast production to average 103.9 Bcf/d in 2024, relatively flat to the 2023 level of 103.8 Bcf/d.
Storage – Traders and analysts expect the Energy Information Administration (EIA) to report a 39 Bcf withdrawal from working gas for the week ending March 29. Working gas inventories would fall to 2,257 Bcf, in line with East Daley’s forecast in the monthly Macro Supply and Demand Forecast.
With the end of the withdrawal season in view, East Daley projects inventory will close the season on March 31 at 2,263 Bcf, a 663 Bcf surplus above the 5-year average and 422 Bcf above last year’s levels.
In the latest Macro Supply and Demand Forecast, EDA projects the upcoming injection season will see a total refill of 1,668 Bcf, which would leave inventories at 3,971 Bcf at the end of October. We expect flat production over the 2024 injection season (April to October) vs the 2023 shoulder months. We model injection rates trailing the 5-year average due to higher demand across all sectors, assuming normal summer weather. Summer 2024 Henry Hub prices should average $2.24/MMBtu, or $0.18 lower than last summer’s average of $2.42.
Rigs - The total US rig count increased by 3 rigs W-o-W, up from 601 to 604 for the week of March 17. The increase was driven by gains in ‘Other’ basin samples, mainly the offshore Gulf of Mexico. In liquids-driven basins, producers in the Anadarko added 2 rigs, while the Permian and Uinta each lost 1 rig.
Anadarko operators Merit Energy and BCE-Mach III each added a rig W-o-W. In the Permian, operators such as Ovintiv, Chevron, EOG Resources, Permian Resources, Devon Energy, and Occidental Petroleum all moved rigs across the basin, ultimately leading to a net subtraction of 1 rig in the Delaware. Uinta Wax Operating dropped 1 rig W-o-W in the Uinta Basin.
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.