The natural gas business is concerned—and rightly so—about impediments to new pipeline capacity serving New York and New England. But the surging output of the Marcellus and Utica basins has to go someplace and that has created a “domino effect” that’s knocking over commodity prices across the continent, according to a BTU Analytics LLC specialist. New England is but one player in a rapidly change supply/demand game across North America.

Jake Fells, BTU Analytics senior analyst, discussed the impact of the big Appalachian plays Jan. 29 in a wide-ranging webcast titled “New Pipe Capacity and the Next Phase of Northeast Production.” Baird Equity Research Energy sponsored the presentation.

“It’s a really an interesting time to be looking into these markets with the production gains that we have seen and some of the big projects that are coming online, and having that happen with LNG demand and Mexican exports coming to fruition,” Fells said. He added that “the Gulf will become the demand center for the United States” going into the next decade. The region accounts for roughly one-fourth of total gas demand now but that share will rise to one-third by 2022.

He discussed the major new transmission lines coming out of Appalachia, including Energy Transfer’s Rover Pipeline, Enbridge’s TETCO-Access South and -Adair Southwest projects, Columbia’s Leach XPress and Rayne XPress, and Algonquin’s Atlantic Bridge.

Fells described how Appalachia can be broken down into two “very different” regions, a southwestern quarter that includes western Pennsylvania, eastern Ohio and West Virginia; and a northeastern quarter in northeastern Pennsylvania.

While the southwestern region is in the process of gaining some 7.5 Bcf/d of capacity, the northeastern area looks to gain 3 Bcf/d, primarily via two projects, Atlantic Sunrise and PennEast.

The southwestern region has growing connectivity to markets in the Midwest, to the Gulf Coast and the Atlantic Seaboard. The second region also has gained connections to the Atlantic Seaboard but also needs to reach new markets in Canada and New England.

The southwest has had growing production, and stronger prices, “supported by new projects coming online.” In the northeast “you see a different response” to production, and weaker prices, “so we saw production drop off” but “production snapped back when winter showed up in November.”

The result was “two different behaviors” due to varying access to gas consumers, Fell said.

The southwest has had new capacity online is Rover, he added. Gas started flowing through the initial portion of the line in September 2017 at 700 MMcf/d, increasing to 1.4 Bcf/d by year end and as new compression came on and its Seneca lateral started up. Eventually, Rover will be a big player with 3.25 Bcf/d of capacity.

The bulk of that flow is new, incremental production, he said, rather than displacement from other pipelines.

“We’re trying to stay on top of this to track where production gains are coming from who’s producing those volumes,” he added. “We’re tracking drilling activity. What we’re closer to now is a working inventory,” the analyst said, with a limited ability by producers to bring on new production quickly—even if new pipeline capacity were available.

Rover, and other new pipelines will have a significant impact on market dynamics, he said. Gas coming out of Appalachia meets gas coming into the Midwest from the Rockies, the Midcontinent and Canada, creating “a null point somewhere in Indiana” where customers receive gas from both directions. Rover will increase pressure on eastbound gas in the ANR and Rockies Express lines over time, “so the null point will continue moving further west.

“What’s interesting is that Permian volumes are also growing quite a bit. What that does is create a domino effect. It puts more pressure on the Rockies and Midcontinent, which then puts more pressure on this gas coming to the Midwest. You’ve got a lot of competition in the Midwest,” Fells said. “Gas that can get to the Gulf, where markets are growing, will go to the premium market.”

Likewise, Williams Cos.’ Transco system now has a null point where southbound gas from Appalachia meets Gulf Coast gas moving north—and that point is moving southward. “That (Appalachian) gas is looking for a demand outlet further down the pipe,” he explained.

He analyzed strong flows in the new pipelines linking Appalachia to the Gulf (TETCO’s Access South and Columbia Gulf’s Rayne XPress) adding that “getting gas to the Gulf is of utmost importance for Appalachia; reaching new-demand markets.”

But the primary concern for the midstream, particularly for firms serving the northeastern quadrant of the Marcellus, is when—of if—new capacity will go in to serve nearby, capacity-constrained New England? Fells noted gas prices briefly topped an astounding $150/MMBtu during the “Bomb Cyclone” in early January, noting limited pipeline capacity leaves the region “susceptible to these blowouts.”

“The political opposition has squashed a lot of projects, so it’s worth watching,” he added. “There is an unprecedented level of opposition by these states.” Fells noted the Northeast will become the marginal supplier in the U.S. once sufficient takeaway capacity enters service. Sadly, “a cold winter is what you will need to change the perspective.”

Further complicating the gas demand picture, Fells added, is the growth in renewables. He said BTU Analytics models indicate renewables will back out 1 Bcf/d of gas demand in the near future just in the Atlantic Coast region—a sizeable figure that will come at the same time that overall energy efficiency slows growing demand.

He closed by emphasizing the domino effect of changing gas supply—and changing demand. No producing region works independently of the others. Growing Gulf regional demand comes from new petrochemical plants, LNG exports and Mexican exports.

“Even if those (Appalachian) molecules aren’t ending up on the LNG tanker, what does end up on the tanker opens up a new market for Appalachia,” he noted. “Again, it’s a domino effect, the idea that growth out of the Gulf provides an opportunity for Appalachian producers.”