For several years, the race between natural gas production and natural gas delivery from the Northeast has been dominated by production from high rate Marcellus and Utica wells. With rig counts significantly down to 45 actives rigs and better infrastructure being put in place, the Northeast stands ready to play an ever larger role in US natural gas domestic production and exports.
Natural gas from the Marcellus and Utica fields continue to dominate natural gas production in the United States with 84.5 Tcf and 6.4 Tcf in proved reserves respectively. Given the gold rush like rise of shale production in Pennsylvania, Ohio, and other Northwestern states, pipelines and other forms of resource transportation lagged behind as the wells kept flowing. New pipeline projects in the area have helped to balance this meteoric rise in production, with over 1 million cubic feet added deliverability to Canada and 1.5 million cubic feet added deliverability to the Southeast and Southwest over the past two years.
Growth from Marcellus and Utica plays has added over 12 billion cubic feet per day since 2011, boasting an impressive 89% of the country’s total growth in natural gas production. It comes as no surprise that natural gas production and exports have dramatically increased, ranking the US first among the world, above Russia, Canada, and China in terms of production. The main problem has been longer lead times for infrastructure projects than for production projects. This partially explains why US LNG exports have been long-in-coming, as world LNG demands are now expected to reach 500 million tonnes by 2035.
New projects within the last year and those planned for the coming two years are increasing deliverability to markets in the Mid-Atlantic as well as the US Gulf Coast. The Rockies Express Pipeline (REX) reversal project along with the Texas Eastern Transmission Company’s (Tetco) OPEN project added deliverability from the Utica shale and over 550 MMcf per day in takeaway to the Midwest. Both the Tennessee Gas Pipeline’s Broad Run Flexibility Project and Williams Transcontinental Pipeline’s Leidy Southeast project now connect large northeastern plays to existing infrastructures, adding over 1000 MMcf per day of deliverability to the US Gulf Coast. Plans for 2016 include the Algonquin Incremental Markets expansion project and the Constitution Pipeline project, which will combined add an extra 1000 MMcf per day to the New England area.
The added natural gas infrastructure is helping set the stage for commodity growth and dominance. Barclays analyst Nicholas Potter said recently in a report that they believe “Natural gas seems well situated for another year of strong power burn in 2016 as low natural gas prices in [the first half], new gas-fired generation and continued coal plant retirements boost power burn.” Prices could reach $2.56 by the end of 2016 if that extra power demand continues.
Already, the new pipeline projects have seen an impact on the industry. Spreads between Henry Hun and Marcellus trading prices have narrowed with the increased capacity. The new projects have alleviated differences between prices in producing and consuming areas around the country. With the increased deliverability capacity, production from the Northeast was up 17% this January from the same time last year. These improvements in infrastructure have not only narrowed the pricing spread, but have prevented huge back logs in transportation during periods of large winter demand.