Today’s report (week ended 7 Sep): EIA: +69 bcf, EA: +69 bcf
- Today’s print, which was slightly higher than consensus estimates, was driven by a 0.6 bcf/d w/w decline in industrial demand due to the holiday effect from Labor Day.
Next Thursday’s report (week ending 14 Sep): EA preliminary: +84 bcf
- Yet another weekly high in US gas output colours our prediction for next Thursday’s print.
Two steps forward, one step back
After hitting weekly production records in every week since late July, Appalachia receipts stagnated somewhat at the start of September. Receipts of 29.5 bcf/d in the region were up by just 0.1 bcf/d w/w in the current week, after the week ending 7 September saw regional receipts fall by 0.1 bcf/d w/w. Maintenance has been a culprit in stemming the previous gains. Leach XPress conducted pigging operations near the Lone Oak compressor station in Ohio from 5–12 September, dropping the pipe’s output from 1.1 bcf/d to an average of 0.8 bcf/d during that span. Elsewhere in Appalachia, an ETP gathering pipeline exploded in Beaver County, PA, early on 10 September, causing a force majeure. Flows to ETP’s connected Rover Pipeline fell by 0.2 bcf/d d/d to 2.7 bcf/d because of the accident.
Even with this recent stagnation, Appalachia output of 29.4 bcf/d so far in September is still up by 0.6 bcf/d m/m and 5.0 bcf/d y/y, as recent infrastructure additions mark two steps forward to push past the recent one step back. The m/m gains stem in part from the 1 September start of flows on Rover’s newly authorised Burgettstown and Majorsville laterals. Flows on the entirety of Rover jumped from 2.3 bcf/d to 2.9 bcf/d as service kicked in on the laterals. Rover could see more uplift before the end of the month after requesting FERC’s permission to place the final outstanding laterals, Sherwood and CGT, into service on 31 August. ETP asked for a response by 15 September with regards to authorisation for the duo but has yet to receive one.
While Appalachia infrastructure beyond Rover is frustrating immediate production gains, there is a strong likelihood of significant capacity additions by the heating season’s start. Atlantic Sunrise has announced an expected in-service date before end-September. Its original request for a 10 September start-up was mooted, as heavy rains in Pennsylvania early in the month hampered mechanical completion of the pipe. Transco pushed the in-service date for the pipe to 17 September. While the only work left on Atlantic Sunrise is tie-ins and backfilling on a small section of the pipe in Lancaster County, PA, potential flood impacts from Hurricane Florence could cause further delays. Meanwhile, Enbridge filed its tariffs for the 1.5 bcf/d NEXUS pipeline on 4 September for a 1 October start-up. Over 98% of the 254-mile pipeline has been lowered into place, with just 10% of backfilling left to be finished before the end of the month.
Henry Hub prices have dropped because of expectations of a deluge of Appalachia supply in the coming weeks. Heating season future prices for Henry Hub have fallen by 11 cents to an average of $2.92/mmbtu between 3 September—just before the NEXUS tariff announcement—and today (13 September). Indeed, there are no future contracts currently trading above $3.00/mmbtu. Basis expectations at Dominion South are also shifting due to the new supply, though the change has been bullish in 2018. The five-year average for Dom South basis for July and August was a discount of $1.20/mmbtu. Those same summer months this year only saw a $0.40/mmbtu discount from the index. This trend of less volatile seasonal basis swings in the Northeast points to the lack of infrastructure constraints benefitting regional producers.
Not all regional indices are seeing support from the infrastructure boom, as Eastern Canadian prices are experiencing devaluation on the promise of new flows. Flows from Rover to the connected Vector Pipeline—which terminates at the Dawn storage hub in Ontario—have risen by 0.2 bcf/d to 1.0 bcf/d since 1 September, when the pipe’s new laterals came online. NEXUS will likely serve as an additional conduit for gas deliverability to Dawn given its own Vector interconnect. While Dawn basis prices for the upcoming winter are supported by the expectation for strong heating demand in Canada, September has seen a dramatic fall in Dawn cash prices. After averaging a 10-cent premium to Henry Hub in August, Dawn cash basis has fallen to just a three-cent premium so far in September, and it is currently trading at a discount (of one cent) for the first time since mid-July.
The march upward in storage injections is looming. The potential for Hurricane Florence to destroy demand will plump inventories more than initially expected, but our balances still point to an end-September carryout just below 3.0 tcf. A direct hit by Florence on the Carolinas could cut power demand by as much as 25%, or 7-8GW for a week, compared to normal mid-September usage, based on similar conditions seen in Florida a year ago as Irma made landfall as a Category 3 storm. The temporary demand loss would be offset by lower nuclear output from the region's reactors, though only Brunswick is close to the coast, indicating a net gas demand loss of 1-2 bcf/d. While cash prices for today still traded hands in the low $2.90s/mmbtu, the steady creep in production and looming demand losses are making another run up in futures outside of the current range unlikely.
|Fig 1: Leach XPress flows, bcf/d||Fig 2: Henry Hub winter prices, $/mmbtu|
|Source: Ventyx, Energy Aspects||Source: ICE, Energy Aspects|