Transco expansion, weather to weigh on Mid-Atlantic gas prices this winter

Seasonal forecasts published by the US National Weather Service are calling for milder temperatures in the US Mid-Atlantic region this winter, likely adding to downward pressure on gas prices that should come with the startup of Transcontinental Gas Pipe Line's Regional Energy Access Expansion project.

According to a series of three-month outlooks published Sept. 21 by the US Weather Service, the mid-Atlantic states, including most of Maryland and all of Pennsylvania, New Jersey and New York, are more likely (e.g., 33%-50%) to see above-average temperatures this winter from November to March.

Milder weather during the heating season would likely dampen residential-commercial and industrial gas demand, putting downward pressure on spot prices at hubs in and around the New York-New Jersey area. A weather-related price hit to the regional gas market would add to expected pressure from the startup of Transco's 830 MMcf/d expansion to its pipeline system in Pennsylvania and New Jersey.

According to a recent filing with the US Federal Energy Regulatory Commission, Transco plans to begin providing up to 450 MMcf/d of firm transportation capacity on its REAE project on an interim basis as early as Oct 15. In a Sept. 19 filing, the Williams' unit requested to place into service portions of the expansion by next month, including a 22-mile lateral, a 13-mile looping segment and some compressor station uprates and modifications, among other facilities.

Prices

Milder weather and additional pipeline capacity in the Mid-Atlantic gas market should help reduce price volatility this winter – an outcome that forwards traders already appear to be banking on.

As of late September, the winter 2023-2024 gas contracts at Transco Zone 6 New York are trading at an average price of around $5.30-$5.40/MMBtu for November, December, January, February and March. The forward average is pricing about 30 cents above last winter's cash-market average – thanks to unusually mild weather last winter – but nearly 70 cents below the winter average from 2021-2022.

Compared with the last two winters, forwards traders are also pricing in a lower peak-season price at just $8.27/MMBtu in January 2024 – well below the peak-$11.64 average price seen in December 2022 and the peak-$11.15 seasonal high seen in January 2022, data from S&P Global Commodity Insights showed.

Storage

Elevated gas storage levels in the East Region could add to the downward pressure on prices – not just in the Mid-Atlantic but also in markets across the Northeastern Seaboard. Despite steady narrowing in the East Region storage surplus this summer – which topped out at 125 Bcf in early June – inventory levels there remain 42 Bcf, or nearly 6%, above the five-year average, according to the US Energy Information Administration's latest weekly gas storage report, published Sept. 21.

With storage demand likely to climb sharply through at least mid-October, the East Region surplus could widen again as weaker, shoulder-season demand leaves more supply available for injection. According to the latest storage forecast from S&P Global Commodity Insights, the East Region will likely post an injection of 38 Bcf in the week to Sept. 22 – well above the average build of just 27 Bcf reported in the corresponding week over the past five years, EIA data shows.