Appalachia gas flows shift north, following higher prices

Larger spreads between spot gas prices in the US Northeast and Southeast has helped shift the direction of flows from Appalachia since Jan. 1, with higher prices in New England and New York attracting more molecules at the expense of southbound flows.

Northbound flows from Appalachia have increased nearly 40% since Jan. 1 to reach 9.4 Bcf on Jan. 3, data from S&P Global Platts Analytics shows. This is more than 800 MMcf/d, or 9%, higher than the December average.

Cash Algonquin city-gates was trading up $5.08 at $10.57/MMBtu in Jan. 3 trading for next-day flows, according to Platts preliminary settlement data. Other regional spot gas prices moved in a $7-9/MMBtu range.

Iroquois, receipts and Niagara were the region's sole hold-outs from the materially upward trend, likely reflecting how inflows from Canada nearly doubled Jan. 3 to 1.6 Bcf from Jan. 1 levels.

Total Northeast gas demand across all sectors rose more than 9 Bcf/d, or 45%, since Jan. 1 to reach 29.5 Bcf Jan. 3, according to Platts Analytics data.

Colder temperatures drove the increase, breaking a 10-day stretch of above-average temperatures and sluggish demand Dec. 24 - Jan. 2. The average Northeast temperature slid more than 20 degrees to 30 degrees Fahrenheit Jan. 3 from 53 F on Jan. 1, according to Platts Analytics and CustomWeather data.

Southeast dynamics

Flow data from Platts Analytics shows that Northeast production outflow capacity utilization to the Southeast fell to 4.9 Bcf Jan. 3, down from 5.2 Bcf Jan. 1 and a prior seven-day average of 5.2 Bcf/d (Dec. 27-Jan. 2).

The lower outflow capacity utilization comes despite elevated Southeast gas demand, with Platts Analytics data showing materially higher residential-commercial and gas-fired power demand between Jan. 1 and Jan. 3, with further increases projected in the near term.

Southeast res-comm demand increased 2.4 Bcf, or 75%, to 5.6 Bcf Jan. 3 from Jan. 1 levels, while gas-fired power demand rose 1.7 Bcf, or 19%, to 10.4 Bcf Jan. 3 from Jan. 1.

Regional res/com demand is expected to jump around 650 MMcf/d on Jan. 4 and remain at the higher level Jan. 5. Similarly, Southeast gas-fired demand was projected to remain above 10 Bcf/d through Jan. 5.

One driving factor of lower Northeast-to-Southeast capacity utilization despite higher Southeast gas demand could be the lukewarm Southeast prices.

Cash Henry Hub fell to $3.58/MMBtu at preliminary settlement on Jan. 3, with other Southeast spot gas prices trading at a similar level of $3.40-$3.70/MMBtu. Regional spot gas prices weakened upon unusually mild temperatures in December that kept overall gas demand low.

Cash Henry Hub averaged $3.71/MMBtu during December, down from $5.03/MMBtu in November.

Outlook

In the near term, northbound flows of Appalachia gas could continue at similar levels, supported by an extended forecast of lower temperatures. Platts Analytics and CustomWeather forecast that the average Northeast temperature will remain the 20s and 30s F over the next two weeks, without a return to the dramatically above-average temperatures seen in the last week of December.

Algonquin city-gate's balance-of-the-month contract was trading at $14.75/MMBtu on the Intercontinental Exchange on Jan. 3, suggesting an outlook for higher prices.