Texas Eastern restart lifts Appalachian spot gas prices, curbing winter storage play

The restart of full capacity on Texas Eastern Transmission earlier this month is lifting basis prices in Appalachia and has simultaneously narrowed the cash market spread to the winter 2021-22 forwards contracts, now giving shippers little incentive to continue injecting gas to storage.

Beginning Aug. 4, the Pipeline and Hazardous Materials Safety Administration, or PHMSA, granted authorization to Texas Eastern to restore full operational capacity along its mainline. Southbound flows through the pipeline's Danville compressor station immediately jumped about 500 MMcf on Aug. 4 and remain up about 450 MMcf/d since the restart, data from S&P Global Platts Analytics shows.

Regional flows from the Northeast to the Southeast are also up, trending at nearly 7.1 Bcf/d over the past week – an increase of almost 600 MMcf/d from the prior-month average.

The additional egress capacity for Appalachia's producers has lifted prices at key upstream hubs.

At Eastern Gas South, cash prices over the past week have averaged just a 46 cent discount to benchmark Henry Hub gas compared with a 90 cent discount in the month prior. Texas Eastern M2 has seen similar gains, rising to an average 45 cent discount to Henry Hub, after trading nearly 96 cents behind the benchmark index in the month prior, S&P Global Platts data shows.

Cash-to-Winter spread

The jump in cash prices at Eastern Gas South, Texas Eastern M2 and other upstream hubs has narrowed the spread to each hub's respective winter 2021-22 forward contracts, which have failed to keep pace.

At Eastern Gas South, cash prices have average about $3.66/MMBtu over the past week – just a 9 cent discount to the January 22 forward contract. At Texas Eastern M2, the spot price has averaged $3.67/MMBtu over the same seven-day period, equating to a 17 cent discount to the January contract.

In July, cash prices at Eastern Gas averaged a 42 cent discount to the January 2022 forwards; at Texas Eastern M2, the cash market traded at a 56 cent discount to the peak-winter contract.

Recent narrowing in the winter-to-cash spreads has made storage injection a significantly less attractive option for shippers. With cash prices at Gulf Coast hubs hovering near $4 recently, it's likely that more of Appalachia's surplus gas will flow southbound, widening this season's already sizeable inventory deficit.

Storage

Over the past seven days, injections to Northeast storage have averaged about 2.8 Bcf/d – down more than 700 MMcf/d from the prior week and about 200 MMc/d lower compared to the July average.

As of Aug. 10, Northeast storage is estimated at roughly 715 Bcf, or about 51 Bcf below the prior five-year average, Platts Analytics data shows. While the inventory deficit has narrowed modestly from over 60 Bcf in mid-July, this season's shortfall will likely be difficult to overcome.

Even assuming storage injections can sustain a five-year-average pace through early November, regional stocks would only reach an estimated 960 Bcf – far short of typical pre-winter storage levels. Given the Appalachia's flat production and already tight supply balance, lower inventories this winter could provide fuel for price spikes on the coldest days this winter – particularly at the region's market-area hubs.