US Columbia Gas maintenance likely to shut in production, increase price volatility

New York — An outage on Columbia Gas Transmission's Leach XPress segment, scheduled to begin Sept. 22, could result in significant production losses and a spike in regional price volatility over the next week.

The eight-day pipeline maintenance will cut flow capacity to zero between LXP's Summerfield and Crawford compressors stations, temporarily taking the line's entire 1.5 Bcf/d capacity offline, information posted to Columbia Gas' electronic bulletin boards shows. In September, flows on the LXP segment have averaged just over 1 Bcf/d, according to data compiled by S&P Global Platts Analytics.

In a critical notice published Sept. 19, the pipeline operator also advised shippers that critical days for storage would remain in effect until further notice, severely restricting interruptible storage injection capacity during the upcoming maintenance period.

Limits to storage-injection and production-takeaway capacities, combined with lower shoulder-season demand could drive significant shut-ins to Appalachian production over the balance of September.

Over the weekend, a separate, planned maintenance on Tennessee Gas Pipeline already began cutting regional production, which fell by nearly 3% to an average 31.6 Bcf/d. Prior to the weekend decline, combined output from the Marcellus and Utica had averaged about 32.5 Bcf/d this month – just below annual highs recorded in August, Platts Analytics data shows.

Prices

On Sept. 21, cash prices at Appalachia's Dominion South hub fell 14 cents on the day to a preliminary settlement at 74 cents/MMBtu, S&P Global Platts data showed. Over the past week, lower demand and strong production have cut prices at the benchmark hub by over 40 cents, or about 37%.

Over the next week, as Columbia Gas' week-long maintenance gets underway, cash prices in Appalachia could continue to tumble as producers max out available capacity to reroute production to other pipes.

Ultimately, though, limited in-basin demand and storage injection capacity could force some producers to temporarily shut in production, allowing cash prices to drift higher, just as Appalachia and the Northeast face their seasonal slump in gas demand.

Forward markets, though, aren't pricing in any dramatic change at Dominion South just yet. On Sept. 18, balance-of-month prices for September edged up modestly to just 95 cents/MMBtu. The forward market is anticipating more price pain next month, too, with October currently priced at just $1.08/MMBtu, S&P Global Platts' most recently published M2MS data show.

Production

Over the balance of 2020, current Platts Analytics forecasts show Appalachian gas production strengthening modestly by late fourth quarter to around 33 Bcf/d.

Through at least early October, though, further declines in supply could be required in order to balance a lengthening regional market under constraint from limited production-takeaway and storage capacity and weaker seasonal demand.

In early September, Appalachia's largest producer, EQT, announced its decision to curtail a net 425 MMcf/d of its Appalachian production indefinitely, in anticipation of weaker prices. According to EQT CEO Toby Rice, such curtailments are likely to become a regular feature for the company during shoulder seasons, although it remains unclear whether or to what extent other producers may follow suit.