ANALYSIS: Northeast seasonal demand, price levels lend support to Appalachian gas production

New York — As rising heating demand lifts spot gas prices in the US Northeast in December, producers in Appalachia are throttling up output there in a trend that's likely to endure through the upcoming winter months.

On Dec. 7, residential-commercial gas demand in the Northeast surged to an estimated 16.8 Bcf/d – its highest since February – as the region's population-weighted temperature tumbled to just 34 degrees Fahrenheit, data compiled by S&P Global Platts Analytics showed.

At Appalachia's benchmark supply hub, Dominion South, colder weather has pushed the cash market to an average $1.92/MMBtu this month, also its highest since last winter.

On Dec. 7, spot gas at Dominion South was down about 17 cents from the prior settlement to $1.76/MMBtu as near-term forecasts called for warming weather. Over the next five days, population-weighted temperatures will rise steadily to about 50 degrees, leading a nearly 45% cut in heating demand, according to a projection from Platts Analytics.

While warming weather could continue to weaken cash prices over the next several days, Appalachian producers are still benefiting from the market's highest demand and price levels since last winter.

As Northeast supply and demand become more finely balanced this year, particularly during lower-demand periods, Appalachian production has become increasingly nimble as it responds to the region's congested transmission pipelines and often saturated market conditions.

Production

In December, Appalachian gas production has averaged nearly 33.9 Bcf/d, making its month-to-date average the highest on record. On Dec. 7, regional output was estimated at 34 Bcf/d, less than 300 MMcf/d below its single-day record high, Platts Analytics data showed.

While a recent seasonal outlook from the National Weather Service suggests that weaker Northeast heating demand could pose a risk for Appalachia's producers this winter, comparatively higher demand during the upcoming colder months should continue to support recent production gains.

During this summer's peak months of June, July and August, total Northeast demand averaged about 16.9 Bcf/d. According to a weather-normal forecast from Platts Analytics, total regional demand from January to March 2021 should trend about 10 Bcf/d higher, helping to absorb incremental Appalachian production that is typically crowded out from interstate transmission lines.

Last winter, exceptionally high Northeast temperatures, which averaged nearly 5 degrees F above normal in the first quarter, still led regional demand to average 25.6 Bcf/d, Platts Analytics data showed.