New pipeline capacity has come online in time for the upcoming winter in the Northeast, but it is unlikely that producers can respond fast enough meet rising gas demand, said a BTU Analytics LLC expert.
“In the near term, as we get this new capacity coming online this winter, with more Rover capacity coming online, we’re not expecting producers to be able to fill those pipeline commitments with incremental gas very quickly,” said energy analyst Matthew Hoza during a recent webinar. “The reason is that backlog has been depleted.”
Wells that producers have relied on to quickly and inexpensively ramp up gas production are exhausted, Hoza said, forcing them to drill into new areas to replace those volumes. That will create a lag between new capacity coming online and incremental gas getting to market.
Among Hoza’s other main points:
- U.S. gas demand will continue to shift toward the Gulf Coast, as operations in Texas and Louisiana drive pipeline exports to Mexico and shipborne exports of LNG to Asia, South America and Europe;
- Dominion South pricing will take a hit over the next two years as increasing volumes of associated gas from the Rockies, Permian Basin and Eagle Ford Shale will force Appalachian gas to compete in limited demand markets.
Once the near-term natural gas supply issue is resolved, a slew of pipeline projects—among them Constitution (650 million cubic feet per day [MMcf/d] and Northeast Energy Direct 1.2 Bcf/d—could ease the Marcellus-to-New England/New York bottleneck but face political and environmental resistance in the region, he said. BTU Analytics estimates a maximum of 3 Bcf/d of gas that can be moved from Northeast fields to New England markets.
The weather will determine if that volume will be enough.
Last winter’s mild temperatures were not much of a test. The winter of 2014-2015, however, especially the month of February, put a severe strain on the system. If a maximum demand situation develops again, Hoza is not optimistic about the result.
“We can only serve 3 Bcf a day of that demand, so in that area there is demand that cannot be served by Northeast piped-in gas,” he said.
Adding to his concern is demand from new natural gas-powered power plants in the region. By 2022, piped-in gas from Appalachia will come up 1 Bcf/d short of demand, Hoza said.
“That means a heavier reliance on Canadian imports; an increasingly heavy reliance on LNG imports as well,” he said.