Appalachia Gas Price and Fundamentals

Eastern Gas (formerly Dominion) South Prices have declined lately as pipeline maintenance has reduced egress capacity and demand has been limited. 

Recent Situation – The seasonal strip chart below is a great tool to see how prices reacted following recent announcements. Note: We use Eastern Gas to discuss price action in Appalachia, serving as a proxy to other named hubs. 

• (November 7, 2023) Williams is set to increase its Appalachian gathering capacity, with Susquehanna increasing by over 320 Mmcf/d and Utica Cardinal by 125 Mmcf/d in 4Q 2023
• (November 6, 2023) Williams completed phase one of the Transco’s Regional Energy Access project, increasing pipeline capacity in Northeastern Pennsylvania ahead of schedule with full completion aimed for late 2024 to add 830 MMcf/d
• (October 10, 2023) Tennessee Gas Pipeline is requesting FERC's permission to place its 115 MMcf/d East 300 upgrade project into service. The project will increase compression and help eliminate capacity constraints in the region during times of peak demand. The project should reduce the probability of price spikes in the Tennessee Zone 6 market area.
• (September 12, 2023) Transco's Regional Energy Access Expansion to begin partial service in October 2023. Transcontinental Pipeline has informed customers that 87 MMcf/d of capacity will become available for a term extending until July 2024. The expansion will connect gas sourced in northeast Pennsylvania to demand centers in the Zone 6 market area.
• (August 29, 2023) Eight states have joined a lawsuit against FERC's approval of the Regional Energy Access Pipeline, which would add 829 MMcf/d of capacity to the Transcontinental pipeline system. The states argue that the approval came despite New Jersey regulator's claims that the additional capacity is not needed.
• (August 15, 2023) PHMSA orders testing of the Mountain Valley Pipeline to undertake a series of safety inspections on the 300-mile project, arguing that segments of pipe left exposed or buried underground for years amid project delays could pose a safety risk
• (August 11, 2023) A challenge by environmental groups opposed to the construction of MVP was struck down by a Virginia appeals court, likely marking the end of the pipeline’s legal challenges
• (August 1, 2023) The US Supreme Court has overturned the stay issued by the Fourth Circuit Court. EQT said that they will be able to bring MVP online by the end of 2023.
• (July 24, 2023) The US Solicitor General has requested that the Supreme Court overturn the stay order issued by the Fourth Circuit Court of Appeals. Equitrans has also requested the Supreme Court act before July 26 for the pipeline to enter service in 2023. 
• (July 11, 2023) The US Fourth Circuit Court of Appeals issued a stay order, preventing construction on MVP in the Jefferson National Forest. EQT has responded by saying that the recent legislation removes the Fourth Circuit Court's jurisdiction over the pipeline and that if there is not a reversal of the order soon, the pipeline may not be completed in 2023. 
• (June 29, 2023) MVP has asked federal regulators to grant the final permits required to complete the construction of the 2-Bcf/d Appalachian pipeline. Developers of the pipeline have asked FERC to approve all construction operations and lift a stop-work order on a section of the line in the Jefferson National Forest

Price Location: Eastern Gas (Dominion) South

The Eastern Gas (Dominion) South point is located in the Appalachian Basin, near Pittsburgh, PA, and serves as a liquid proxy for Northeast gas basis. The Northeast gas market has undergone dramatic changes over the last several years. The pipeline map shows the different corridors out of the Appalachian basin as well as the Eastern Gas (Dominion) South pricing point. The shaded circle is where the bulk of the Appalachian supply is located. 

Price

November 7, 2023 - Prompt Eastern Gas basis prices have continued to recover from an August low of -$1.68/MMBtu. The prompt contract has climbed to $-0.92. While the next few winter strips have improved as well, the Summer '24 and Summer '25 strips have declined to $-1.14 and $-1.24, respectively. 

The largest potential factor affecting the future of pricing in the Appalachian region is the completion of the Mountain Valley Pipeline. At first glance, an in-service MVP, that will have a capacity of 2 Bcf/d, should improve basis pricing. However, upon further analysis, there seems to be downstream constraints on the Transco mainline that will not allow MVP to flow at its full potential until upgrades are made over the next few years. 

The forward curve reflects the reality that MVP will have little initial impact. The smaller incremental egress gains provided by MVP's future in-service will likely be quickly back filled with supply - returning the basis to its current steady state.  

Market Influences 

The in-service dates for the pipelines in the chart above were compiled using each company's investor presentations.

The main pipeline that was supposed to bring additional capacity, the Mountain Valley Pipeline, is not expected to come online until the end of 2023, after multiple years of delays. The chart above shows the currently existing and planned egress capacity. There are several different production forecasts, but analysts' general expectation is that Appalachian production will likely stay flat or decline. 

The basin's supply base has been growing rapidly for the last ten years and is finally showing signs of depletion or at least slowing production growth. 

Recent Infrastructure Announcements

Mountain Valley Pipeline – U.S. pipeline company Equitrans Midstream Corp expects the Mountain Valley natural gas pipeline startup has been delayed to the end of 2023.

The Mountain Valley Pipeline (MVP) project is a natural gas pipeline system that spans approximately 303 miles from northwestern West Virginia to southern Virginia and will bring nearly 2 Bcf/d of takeaway capacity from the Appalachian basin to the mid-Atlantic markets. The pipeline has faced numerous court challenges throughout the life of the project, which is why the project is now two years beyond the original in-service date of 4Q2018.

PennEast Pipeline - Cancelled

Regional Energy Access Pipeline - Williams announced that the Regional Energy Access Pipeline is on track to enter in-service during the fourth quarter of 2024. The 829-MMcf/d pipeline will help serve residential, commercial, and power demand in Pennsylvania, New Jersey, and Maryland.