Today’s report (week ended 12 Jul): EIA net change: +62 bcf, EA: +62 bcf
- In a rare turn of events, today’s print fell under consensus (see page 4 of the attached report for our weekly balances). Per our estimates, power demand was up nearly 1 bcf/d w/w and output declined 0.5 bcf/d.
Next Thursday’s report (week ending 19 Jul): EA preliminary: +31 bcf
- A 2.0 bcf/d w/w gain in power sector gas demand and a 1.6 bcf/d w/w loss in gas production, mostly driven by shut-ins related to Hurricane Barry, will halve the injection rate w/w.
Production sings, pipelines swing
July production has been running hot, up by 8.0 bcf/d y/y, even given some recent hurricane-related losses. Our balances point to production gains of 6.7 bcf/d y/y in H2 19, even as key infrastructure additions fall behind schedule or have been pushed back from their Q4 19 in-service dates. In Oklahoma, Cheniere’s 1.4 bcf/d Midship project is behind the construction pace set by similar pipelines as it deals with mounting FERC scrutiny. In Appalachia, EQM’s 2.0 bcf/d Mountain Valley Pipeline (MVP) is not included in our balances for this year despite its wildly optimistic previous Q4 19 scheduled start-up, which was pushed back to H2 20 in late June. While these delays may not be enough to limit national production growth in H2 19, their expanding timelines could leave shippers scrambling and sap potential output gains in 2020.
Federal oversight is just one of the issues facing Midship after FERC ordered an immediate halt to work on 3 July on three of four spreads on the 200-mile pipeline due to a series of environmental non-compliance issues. FERC cited 62 such issues in June alone, 17 of which it deemed were not satisfactorily dealt with. Cheniere blamed heavy rains and strong winds for erosion slips, and on 10 July produced a plan to restore the uppermost 12 inches of topsoil along Midship’s path. FERC has yet to respond, and its construction moratorium still holds.
Midship’s construction progress is still lagging behind its stated Q4 19 in-service date—and that would have been the case even without the recent regulatory hurdles. Only 62% of Midship’s path was cleared as of the latest FERC-filed report from Cheniere, which covers activity through 14 June, barely up from 54% at the start of May. Less than a quarter of the pipe was welded and less than 10% of its trench was dug, the mid-June update showed. Cheniere has not updated its Midship guidance yet this year, though it may do so during its 8 August quarterly earnings call.
Midship’s construction has also fallen dramatically behind the pace of recently in-service, similarly-sized pipes. Leach XPress, a 160-mile, 1.5 bcf/d Appalachia project, entered service in January 2018 and six months before starting up was well ahead of the progress made by Midship at this point. At that time, Leach XPress had already cleared 100% of its right-of-way, welded 40% of the pipe and had dug over half of its trench. Midship lagging these indicators and falling under a construction moratorium indicates mounting risk to Cheniere’s Q4 19 timeline.
Midship’s 1.4 bcf/d in capacity is needed to help output from the SCOOP-STACK reach the LNG facilities on the Gulf Coast. SCOOP-STACK production has been nearly flat in 2019. Flow data indicate production in the basin of 3.75 bcf/d in July to date remains below the highs of 3.9 bcf/d set in December 2018. Midship will likely need to come online for any meaningful uplift and that looks like it might not happen in H2 19.
In Appalachia, MVP does not factor into our regional production balances through 2020 given the pipe is battling several drawn-out legal issues. Most pressing of those is how the pipe will cross the Appalachian Trail after the US Court of Appeals for the Fourth Circuit invalidated MVP’s permit to cross federal land. EQM has discussed a land swap with the US Department of the Interior, wherein EQM would be granted right-of-way for construction in exchange for full ownership of land the pipeline traverses that abuts the Jefferson National Forest. Even this solution would likely be challenged in court by environmentalists though.
We think MVP’s new in-service date of H2 20 is overly optimistic. Even without the legal quagmire regarding federal land, MVP still faces significant construction hurdles. FERC is currently investigating the pipeline for potentially using toxic epoxy coatings. While the pipe is now more than half backfilled, two of the pipe’s nine spreads (spreads G and H) have seen almost no construction progress in 2019 due to the Appalachia Trail ruling. These sections are lagging due to difficulty in securing a water crossing permit for four key rivers in West Virginia, which the Fourth Circuit voided last year (see E-mail alert: Mountain Valley gas pipe construction hindered due to lawsuits and erosion control issues, 13 June 2018). We do not expect Appalachia to see capacity constraints through at least end-2020 given the buffer provided by several projects which began operations in 2018, but MVP’s constant delays may push start-up beyond then.
|Fig 1: Midship construction, percent complete||Fig 2: MVP construction, percent complete|
|Note: Construction progress as of 14 June, 2019.
Source: FERC, Energy Aspects
|Note: Construction progress as of 5 July, 2019.
Source: FERC, Energy Aspects
It is not just supply infrastructure facing question marks. Uncertainty continues to surround the timing of first exports at Freeport LNG T1, which the company recently announced would occur in mid-August before a September commercial start-up. The terminal received permission to introduce gas to commission its pre-treatment facility on 10 July. Flows to Freeport LNG then resumed on 13 July, flowing for the first time since late May, and have averaged 0.15 bcf/d since.
While Freeport LNG’s timeline for loading a first cargo next month is technically feasible, it does represent a compressed scheduled compared to other recent US terminals. Cameron LNG T1 and Corpus Christi T1 both reached first exports more than three months after receiving full feedgas approval, a milestone Freeport LNG has not yet reached. Freeport LNG’s approvals have been more piecemeal, though it announced it was commissioning compressors and equipment on schedule. Our balances point to 0.7 bcf/d in m/m feedgas growth in August, to 6.2 bcf/d, largely due to increased flows to Corpus Christi T2 and Freeport LNG as each continues with commissioning.
This week’s print of 62 bcf was the lowest injection for any full week of the injection season so far, caused in part by the production losses associated with Hurricane Barry. The Gulf Coast bottomed out with production of just 0.9 bcf/d on the day Barry made landfall, more than 2.0 bcf/d below the pre-storm baseline a week earlier. Even as producers return personnel to platforms this week, the production rebound has been slow. Today, five days after landfall, flow data indicate Gulf of Mexico (GoM) receipts have only risen by 0.5 bcf/d from their low on 14 July. For comparison, after the October 2017 landfall of Hurricane Nate nearby in the eastern Gulf, production spiked by 1.7 bcf/d in the five days after the storm arrived, after bottoming out at 0.7 bcf/d (see Fig 3).
|Fig 3: GoM production during hurricanes, bcf/d||Fig 4: Weekly EIA storage change, bcf|
|Source: Ventyx, Energy Aspects||Source: EIA, Energy Aspects|