Appalachian forward gas prices rally as Northeast regional storage lags

Autumn 2021 gas prices in Appalachia are on the rise recently as record power burn and strong regional outflows limit this summer's storage build, fueling a bullish outlook for late-season injection demand.

Over the past week, Eastern Gas Transmission – formerly known as Dominion South – has seen its calendar-month forwards prices for September and October climb about 23 cents, or nearly 14%, to around $1.90/MMBtu, S&P Global Platts' most recently published M2MS data shows.

During recent autumn seasons past, cash prices at the benchmark regional hub have hit annual lows from late-September to mid-October, often dipping below the $1 level.

The recent rise in autumn 2021 forwards prices, which has also been accompanied by a rally in the cash market, comes as Northeast gas-fired power burns hits record highs for the early-summer season. June 1 to date, power burn demand in the US Northeast has averaged 9.2 Bcf/d making this month's average the highest on record for the month of June, data from S&P Global Platts Analytics shows.

Record burns have been accompanied by surprisingly strong outflows to neighboring markets in the Midwest and the Southeast. In June, transmissions out of the Northeast have averaged nearly 14.5 Bcf/d. In comparison with the corresponding period in June 2020, flows to neighboring markets are up about 2.1 Bcf/d this month, despite ongoing flow restrictions on one Appalachia's key outflow corridors – Texas Eastern Transmission.

Storage

Strong outflows and record power burns in the Northeast have left limited gas supply available for injection to regional storage this month. From June 1 to date, shippers across the Northeast have added just 71 Bcf to inventory, leaving regional stocks at 562 Bcf – nearly 60 Bcf below the five-year average level, Platts Analytic data shows.

With inventories currently at their lowest late-June level since 2018, Platts Analytics believes injection demand may need to rise significantly during the latter months of summer to reach historical pre-winter inventory levels at over 1 Tcf. Elevated late-season injection demand could give Appalachian and Northeast gas prices a lift this September and October – a factor likely contributed significantly to the recent rise in forwards prices at Eastern Gas.

Continuing maintenance on Texas Eastern, however, could stymie the market's bull run by limiting available outflow capacity and shipper end-market optionality, just when they're needed most.

Maintenance risk

Southbound flows on Texas Eastern have fallen substantially since PHMSA issued its Amended Corrective Action Order on June 1, effectively suspending the agency's renewal of the pipeline's permission to operate at maximum capacity with the reinstatement of a 20% pressure restriction on the 30-inch system between the Kosciusko and Uniontown compressor stations.

Platts Analytics data shows net flows along Texas Eastern to the Southeast have averaged 1.1 Bcf/d so far in June, down around 814 MMcf/d, or 43%, from May. Some of this Northeast gas has been diverted to flow south through Tennessee Gas Pipeline, which has seen a 360 MMcf/d, or 24%, increase from May levels. The Midwest has soaked up some of the stranded Northeast gas as well, with month-to-date Northeast-to-Midwest flows up around 150 MMcf/d from May.

Enbridge anticipates Texas Eastern's earliest return to full service would be towards the end of third quarter of 2021, according to an update published June 10.