Analysis: Concerns over Texas Eastern capacity restrictions ease, but volatility risks remain

New York — Concerns over gas supply on Texas Eastern Transmission eased on July 15 as the market reversed wide prior-day price swings at the M2 and M3 hubs that had followed the recent announcement of system constraints this month across the pipeline's M2 market zone.

Cash prices at Texas Eastern M3 tumbled 59 cents during the day, trading down to $1.63/MMBtu. At Texas Eastern M2, prices jumped more than 11 cents to $1.285/MMBtu. Price movements at other nearby hubs were largely muted, according to preliminary settlement data from S&P Global Platts.

The July 15 prices swings at Texas Eastern M3 and M2 completely or nearly reversed movements during the previous trading session that were prompted by supply concerns at the two hubs and in their broader market areas, also known as M3 for the Northeast and M2 for Appalachia.

In a critical notice published July 13, Texas Eastern said operational capacities on its 30-inch line would be significantly reduced from July 14 through July 28, triggering alarm over the possibility for limited downstream supply in M3 and stranded gas production in M2.

Capacity reductions

From July 15 to July 22, northbound flow capacity at the Uniontown compressor station, located at the border of the M2 and M3 markets zones, will be reduced to 2.66 Bcf/d – down from its nameplate capacity of 4.5 Bcf/d. On July 23, another single-day reduction will lower capacity to 1.92 Bcf/d. From July 24 to July 28, flow capacity will rise to 2.63 Bcf/d, Texas Eastern's operation status update shows.

Capacity details within M2 remain undisclosed by the operator for dates beyond July 28.

While ongoing flow reductions at Uniontown could limit available gas supply flowing to the M3 hub this month, the same constraint could leave Marcellus and Utica gas production with reduced optionality for reaching downstream markets located across the M3 market area, which includes downstream hubs in states stretching from Connecticut to Virginia.

Other simultaneous restrictions this month in Texas Eastern's M2 market area – most notably at the Owingsville compressor in Kentucky – could further limit market access for Appalachia's gas producers as flow capacity to the Southeast and Gulf Coast markets remains restricted.

At the Owingsville compressor, where a May 5 explosion cut throughput to zero earlier this year, ongoing southbound restrictions this month will limit the station's 2.13 Bcf/d nameplate capacity to just 900 MMcf/d through July 15. From July 16 to July 19, capacity will rise to 1 Bcfd, before dipping to 850 MMcf/d from July 20 to July 25. Capacity will subsequently range from 950 MMcf/d to 1 Bcf/d from July 26 to July 28, Texas Eastern's operation status update shows.

Price swings

Milder temperatures and lower overall gas demand in the Northeast this week could be a factor contributing to the downward swing in prices at Texas Eastern M3 on July 15.

With total Northeast region gas demand estimated 18.1 Bcf/d on July 15, consumption is down about 5% from levels seen earlier this month as milder temperatures potentially help to keep a lid on prices at Texas Eastern M3.

By next week, though, hotter weather is forecast to lift accompanying gas-fired electric cooling demand, lifting power burn to levels significantly above the single-day regional record set earlier this month at 12.5 Bcf/d.

With Texas Eastern's system constraints expected to continue limiting gas supply flowing into the M3 market area, cash prices at the M3 hub could see price volatility return over the next week.