Dominion South spot gas market sees early start to autumn-season volatility

New York — Sharply lower cash prices at Appalachia's Dominion South hub in recent trading, could endure into the shoulder season as lengthening gas supply in the US Northeast continues to pressure the market.

On Aug. 14, spot prices were up modestly from the prior-day settlement to $1.08, but significantly lower compared with the August average at $1.26/MMBtu, preliminary data from S&P Global Platts showed.

In the forward market, balance-of-August and September prices have also cratered recently, with the two contracts falling over 25 cents since earlier this month to around $1.20/MMBtu on Aug. 13.

Weaker cash and prompt-forward prices have accompanied cooler Northeast temperatures and lower gas-fired power burns, both of which are forecast to stick around through late August.

On Aug. 14, power demand was estimated at 11.4 Bcf/d and should average just 10.1 Bcf/d over the next week. In late July, Northeast power burn hit a record high at nearly 14 Bcf/d and averaged about 12.2 Bcf/d during the month, data compiled by S&P Global Platts Analytics shows.

Elevated gas production is magnifying downward pressure in the region's upstream cash markets.

After hitting a year-to-date high at 33.3 Bcf/d on Aug. 9, Appalachian Basin output has dropped precipitously to around 32.5 Bcf/d amid widespread declines across the Marcellus and Utica shales.

According to Platts Analytics, though, an approaching end to maintenance on Columbia Gas' Mountaineer XPress Pipeline, now scheduled for Aug. 15, could see production return to pre-outage levels at over 33 Bcf/d by the weekend – renewing the supply pressure on prices.

Autumn volatility

By early September, cash prices at Dominion could see another wave of demand-side pressure as cooling temperatures trim regional power burns and lower outflows to neighboring markets in the Midwest, the Southeast and the Gulf Coast.

Over the past five autumn shoulder seasons, cash prices at Dominion South have consistently fallen through the $1 threshold from late September to October – in some instances for extended stretches.

In October 2016, Dominion South settled at its lowest over the past 25 years at just 31 cents/MMBtu.

Market volatility during past autumn seasons has resulted historically from the collision of supply growth and weaker seasonal demand. This year, Appalachian production should have significantly lower upside potential, though, thanks to recent reductions in rig count and drilling activity across the basin.

On second-quarter earnings calls this month, most Appalachian producers reaffirmed their commitments to limited capital spending and maintenance production levels for 2020. On Aug. 13, combined rig count in the Marcellus and Utica was estimated at just 33 – its lowest in 15 years, data published by Enverus DrillingInfo shows. According to a recent forecast from Platts Analytics, monthly average production in Appalachia should remain comfortably below 33 Bcf/d through at least the fourth quarter.