Shut-in gas production in the Northeast has returned and strained local gas basis.
Dry-gas production has rebounded to over 2 Bcf/d in Appalachia, only 600 MMcf/d shy of the record set late last year. EQT was likely the cause of most of the production surge; it announced this week that it had returned all of the 1.4 Bcf/d voluntarily shut-in during May.
Dominion South near-term pricing has worsened as production has increased. Prompt-month DomS fell about 25c (dark blue line) and September and October tenors together lost 20c (light blue line).
The rapid decline in price occurred despite Northeast gas demand near an all-time seasonal high. What happens when the “shoulder season” arrives and some of that demand subsides? October and November are typically the most vulnerable months for DomS basis. DomS has already been weak; it could fall further if weather subsides or Appalachian production remains elevated near record levels. Take caution for the remainder of summer.
Production is not the only cause of recent basis weakness. Another reason why Southwest Appalachia basis has come under pressure is the reduced amount of southbound pipeline capacity.
Gas flows on the Texas Eastern Transmission pipeline or TETCO, have been nearly cut in half recently, as the pipeline had an explosion near Owingsville, Kentucky in May – read Texas Eastern Pipeline Explosion Starves Appalachia of 1.4 Bcf/d Outbound Capacity for more details. The Dominion and TETCO systems share much of the same geological footprint, so prices on those pipes are typically highly correlated. The DomS price chart above reflects the impact of reduce southbound gas flows in May as pricing quickly dipped before finding other outlets. The explosion caused flows on the affected portion of TETCO to stop before resuming at about half capacity between June and now.