Infrastructure – Williams (WMB) has started service on Phase 2 of the Regional Energy Access (REA) expansion despite a US appeals court vacating permits for the project.
On August 2, WMB’s Transcontinental Gas Pipe Line (Transco) filed notice with the Federal Energy Regulatory Commission (FERC) that it had started service on facilities built as part of the REA expansion. Phase 2 adds 379 MMcf/d of capacity from the Leidy storage hub to serve customers in Pennsylvania, New Jersey and Maryland. Williams placed Phase 1 of the REA expansion in service in October ’23.
The in-service came just days after the US Court of Appeals for the District of Columbia vacated FERC’s permits for the REA expansion, on the grounds that FERC did not adequately address market studies showing the project was not needed. The agency also failed to consider state laws targeting lower natural gas consumption when it certificated the project, the appellate court ruled.
On the company’s 2Q24 earnings call, WMB executives expressed confidence that Transco could obtain temporary approval from FERC to keep the new facilities in service. Williams also believes it can successfully litigate the challenge to the project permits.
Williams placed Phase 1 of the REA expansion in service in October ’23. Pipeline sample data at the time showed flows on Transco jumped immediately to fill the new capacity. The effects of REA Phase 2 have been more muted, likely due to lower seasonal demand in the Northeast.
The value of the REA project will come into focus this winter when heating demand is in full swing. Extreme winter weather in the Northeast creates demand spikes that have exposed bottlenecks in the pipeline network, such as flows between the Transco Zone 6 and Liedy hubs. In recent winters, Transco Zone 6 has traded at a premium to Leidy-Transco, at times upward of $1.00/MMBtu. The REA expansion adds 829 MMcf/d of total capacity and should narrow the spread between Transco Zone 6 and Liedy-Transco spot prices this upcoming winter.
Flows – Pipeline samples in the Powder River Basin are near the highest level of 2024, potentially reflecting new growth from the Wyoming basin.
Rockies basins have maintained relatively steady rig activity in 2024. The region had a total count of 43 rigs for the second week of August vs 40 active rigs at the start of the year. The Powder River, Uinta and Denver Julesburg have the highest share of rigs in the region. However, operators in the Powder River have added 2 rigs since the start of the year, recently running 12 rigs in the basin.
The Powder River recently saw an uplift in the pipeline sample of 4.6% W-o-W. With a sample coverage of around 100%, production could be increasing as a result of higher sustained rig activity in the latest three months.
Flows – Northeast samples are down 3% W-o-W and 1% down from July. The decline primarily is coming from the NE–PA and SW-PA producing regions, down 320 MMcf/d and 390 MMcf/d on average. West Virginia samples have offset this decline and are up 360 MMcf/d, while Utica samples are roughly flat.
Analyzing EQT pipeline samples, they are down ~600 MMcf/d from mid-June levels following the recovery from shut-ins earlier this year. According to EQT’s guidance for 90 Bcfe curtailed through 2H24, these curtailments are likely to continue through early winter.
Storage – The market could see a rare summer storage withdrawal in the upcoming Energy Information Administration (EIA) report. Traders and analysts expect the agency to report a net injection of 1 Bcf into working gas for the week ending August 9. Inventories would rise to 3,271 Bcf, in line with our outlook in the monthly Macro Supply & Demand Forecast
Estimates in John Sodergreen’s The Desk survey range for an injection of +21 to a net withdrawal of -12 Bcf. Should the EIA publish a net storage withdrawal, it would be the first in the summer (June-August) since the week ending July 29, 2016. It would be only the third summer drawdown in historical EIA data. The other weekly storage draw occurred in August 2006, an event made infamous for triggering the collapse of two trading firms, Amaranth Advisors and MotherRock.
An intense heat wave blanketed much of the Lower 48 in early August and created strong demand for power generation during the EIA survey week. The heat was particularly intense in the South Central region, where demand from the electric sector could tip the EIA report to a net withdrawal. The 2016 summer storage withdrawal occurred under similar circumstances, and saw capacity holders in the South Central region withdrew more than was injected in the East, Midwest and Mountain regions. In The Desk survey, analysts expect withdrawals from South Central storage in the range of -x to -xx Bcf.
There are further similarities to the 2016 market. A warm winter left storage inventories at then-record highs, and despite lower-than-average injections through the summer, working gas eventually peaked at 4 Tcf by the end of the injection season. For August ‘24, EDA projects a monthly net injection of 66 Bcf in the latest Macro Supply & Demand Forecast. Market consensus estimates range from 40-80 Bcf, well below last August’s injection of 188 Bcf.
Rigs – US rigs decreased by 5 W-o-W with the total count sitting at 552 for the August 3 week. The DJ and Marcellus-NE PA each added 1 rig W-o-W. The Anadarko and Marcellus+Utica lost 2 rigs on the week while the Permian and Uinta basins are down 1 rig each.
On the midstream side, Energy Transfer (ET) is up 7 rigs total with new activity on its Permian, Eagle Ford and Marcellus-NE PA systems. Enterprise Products (EPD) lost 2 rigs total with losses in the Eagle Ford, ArkLaTex and Piceance.
East Daley’s weekly Midstream Activity Tracker monitors rig activity by basin and by 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.