Gas processing plant outages curb Appalachia production, support spot prices

An unplanned outage at two Appalachia natural gas processing plants has curtailed production volumes by more than 2 Bcf/d, softening the impact of lower temperatures on regional spot gas prices.

MarkWest's Sherwood and Mobley gas processing plants in West Virginia were affected by an "upstream operational event" June 30, which is restricting gas receipts at the facilities until repair work on an NGL pipeline at the company's nearby Majorsville facility is completed.

No timeline for the completion of repairs had been established as of the afternoon of July 2, the company said in a statement.

A number of gas pipelines connect with the Mobley and Sherwood plants, including Equitrans and Rover, with Columbia Gas Transmission appearing to be most affected by the outage.

The outage would reduce supply to Columbia by about 2 Bcf/d until it is resolved, the midstream operator estimated in a critical notice, which has largely been borne out in its nominations data, collected by Platts Analytics, which shows a 2-Bcf drop in flows off Columbia to 1.4 Bcf on July 2 from 3.4 Bcf June 29.

In total, West Virginia gas production has dropped more than 3 Bcf/d since June 29, according to Platts Analytics data, lowering total Northeast gas production to 30.94 Bcf July 2.

The decrease in Appalachia gas production has coincided with an easing of Northeast gas-fired power demand, as temperatures fall from historic highs. Platts Analytics data shows that Northeast gas demand fell to 14.11 Bcf July 2, a 5 Bcf, or 26%, slide since June 29.

Highs in both New York City and Boston climbed into the 90s Fahrenheit June 29-30 before falling to a more moderate 60s and 70s F by July 1. The National Weather Service forecast that lower temperatures in both major metropolitan areas would continue through July 4 and start to rise again July 5.

Northeast spot gas prices strengthened in July 2 trading, despite the mild holiday weekend demand forecast. EGTS South, formerly known as Dominion South, moved 8 cents higher at $2.73/MMBtu in morning trading, while Algonquin city-gates rose 12 cents to trade at $2.88/MMBtu.

With timing uncertain for when the two facilities resume service, Northeast spot gas prices could face significant upside risk next week should temperatures spike again in the near term as expected. Platts Analytics projected Northeast gas demand to increase 3.5 Bcf/d, or 25%, from July 4 levels to surpass 17 Bcf/d for July 6-7 as the average regional temperature soars 14-16 degrees above normal.

Gas futures indicate that this potent potential mix of higher demand and lower supply is already on traders' radar. The Algonquin city-gate's balance-of-the-month contract was trading at $3.55/MMBtu on Intercontinental Exchange July 2, nearly 70 cents above the location's spot price.