Appalachian gas markets remain strong, despite continuing Texas Eastern outage

New York — Spot gas prices in Appalachia and the US Northeast edged higher Monday, despite an ongoing outage on Texas Eastern Transmission that will likely continue pushing back on regional supply through late May.

In midday cash trading, Appalachia's benchmark supply hub, Dominion South, jumped 9 cents, rising to $1.40/MMBtu. At the nearby Texas Eastern M2 location, prices climbed 10 cents to $1.37/MMBtu.

At downstream locations including Texas Eastern M3, Transco Zone 6 NY and Algonquin city-gates, cash markets were up roughly 20 cents Monday as below-average temperatures stoked regional heating demand.

In a critical notice Friday, Texas Eastern said it anticipates continued north-to-south flow restrictions through its Owingsville compressor station in Kentucky over the next two to three weeks as it conducts line inspections near the site of a pipeline explosion that occurred May 4.

While just one of three lines that comprise its 30-inch diameter pipeline system in the area was damaged, gas transmissions on Texas Eastern have remained at zero following the explosion as the operator works with the National Transportation Safety Board and the Pipeline & Hazardous Materials Safety Administration to evaluate options for restoring at least partial capacity through the affected segment.

PRODUCTION, FLOWS

In the days since the explosion on Texas Eastern, below-average temperatures and elevated heating demand across the Eastern Seaboard have offered an outlet for Appalachian gas production that otherwise would have likely faced downward pressure.

Over the past week, Appalachian Basin producers have churned out an average 32.4 Bcf/d, with output up roughly 100 MMcf/d compared with levels in the month prior to the pipeline explosion.

As producers reroute upstream supply, production receipts on Texas Eastern have fallen about 210 MMcf/d since the outage, with smaller declines on Rover Pipeline and Tennessee Gas Pipeline. A simultaneous uptick in receipts has has been reported on Columbia Gas Transmission – up about 300 MMcf/d – along with smaller increases on Rockies Express Pipeline, Nexus Gas Transmission, Equitrans and Dominion Transmission, S&P Global Platts Analytics data shows.

While the Texas Eastern outage in Kentucky has lowered Appalachian gas transmission to markets in the Southeast and the Gulf Coast by an estimated 460 MMcf/d in total since the outage began, flows to neighboring markets in the US Midwest have witnessed a simultaneous and nearly equivalent jump.

PRIOR INCIDENT

Last summer, similar explosion-related outage on Texas Eastern occurred on August 1 at a location just downstream of the May 4 incident, cutting southbound capacity on the pipeline to zero until August 26.

The previously ruptured segment was already operating at reduced capacity this month due to still-ongoing pressure reductions from the prior explosion.

Last August, limited optionality to flow gas south on alternate pipelines saw many shippers move Appalachian production westbound into the Midwest – similar to the shift in regional flow balances seen over the past week.

Since last August, though, much of the previously available westbound capacity has filled, potentially limiting shippers' optionality into Midwest markets – a circumstance that could become more prevalent in the days ahead as milder, shoulder-season temperatures limit Northeast region's demand for Appalachian gas.