Natural Gas Weekly: June 20, 2024
Infrastructure – After years of legal struggles, Mountain Valley Pipeline (MVP) finally entered service on June 14 and is currently available for interruptible or short-term firm transport contracts through June. The pipeline is fully subscribed under long term capacity agreements with the anchor shippers which begin July 1. The pipeline has been flowing an average of 340 MMcf/d since its start up, well below the full 2 Bcf/d of capacity.
Mountain Valley runs roughly 300 miles from the Marcellus (West Virginia) to an interconnect with Williams’ (WMB) Transcontinental Pipe Line (Transco) in Pittsylvania, Virginia. East Daley expects MVP to be less than 50% utilized on average in 2024, due to downstream constraints at Transco Zone 5.
Transco is the primary pipeline providing ~2 Bcf/d of egress out of the Zone 5 hub. The pipe is fully contracted and seasonally runs full creating bottlenecks for additional MVP flows into the area. In May, Transco’s southbound egress ran ~400 MMcf/d below capacity providing some room for MVP to offload volumes to more southern demand (see chart).
While there are some incremental projects expanding Zone 5 capacity in 2H24 and 2025, downstream constraints will be fully alleviated in 2027 when Transco debottlenecks downstream through its Southeast Supply Enhancement expansion. Equitrans (ETRN) is developing the MVP Southgate project to extend service from MVP into North Carolina as well as the potential for an MVP mainline compression expansion of 500 MMcf/d. Both projects have start up dates expected post 2027.
Flows – The U.S. interstate gas sample was up 0.4 Bcf/d (1%) W-o-W for the week of June 16. Gas-driven basins remain relatively flat. The prior trend of declines in Haynesville (ArkLaTex) and Northeast (Marcellus + Utica) seem to have ceased. EQT brought ~1 Bcf/d of Northeast production back online in late May due to stronger prices and in preparation for the start-up of Mountain Valley Pipeline (MVP).
Samples in liquids-focused basins increased slightly 0.3 Bcf/d (1%) W-o-W. The sample in the Permian suggests that production in the basin has remained relatively flat, but there has been rerouting between interstate and intrastate pipelines as capacity constraints on egress pipelines continue in the region. The flow restrictions, as shown in our latest Permian Supply and Demand report, should keep Waha trading at a steep discount until the new Matterhorn pipeline begins. We anticipate Matterhorn will start taking line-fill in July.
Despite rig counts dropping in the Delaware because of M&A activity, EDA expects efficiency gains among the top producers will offset the impact. EDA forecasts 1.2 Bcf/d of growth in 2024 and 2.3 Bcf/d of growth in 2025 of gross gas production.
In our May Macro Supply and Demand Forecast, EDA models Lower 48 gas production to average 102.4 Bcf/d in 2024, which is slightly above what we are expecting for the June release.
Storage – The Energy Information Administration (EIA) is expected to report a net injection of 69 Bcf into working gas storage inventories for the week ending June 14th. For the same week last year, the EIA reported a 92 Bcf injection, or 23 Bcf higher, implying that year on year the market is over 3 Bcf/d tighter. Higher gas-fired power burns driven by a heat dome over much of the country have contributed to this imbalance. Production is also lower year over year as we anticipate June 2024 to average just 99.2 Bcf/d. Inventories would rise to 3,043 Bcf, in line with our outlook in the monthly Macro S&D Report.
The surplus to the 5-year average would fall by 14 Bcf to 559 Bcf while the surplus to last year would slip to 342 Bcf. With production falling off and demand omnipresent, we expect the surplus to both last year and the five-year average to erode rapidly over the summer.
Rigs – U.S. rigs are down 7 w-o-w with the total count sitting at 556. The Permian is down 3 rigs, the Anadarko is down 2 rigs, and the ArkLaTex and Uinta are each down 1 rig. The Marcellus-NE PA is up one rig on the week.
On the midstream side Energy Transfer (ET) is down 5 rigs with reductions on its Permian and Anadarko systems. Targa Resources (TRGP) is down 6 rigs total with losses on its Permian 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.