Natural gas production growth in the Appalachian Basin has outpaced the available pipeline capacity of most of the region’s hubs, leading to a large supply of backed-up natural gas. The U.S. Energy Information Administration projects that Marcellus Shale gas production will exceed 16 billion cubic feet per day in November. However, mild weather combined with this large supply is causing spot prices to drop since the local demand is low and producers do not have the ability to transport the natural gas to other regions of the country where demand is higher.
The following graph, which was developed by the U.S. Energy Information Administration (“EIA”) compares natural gas trading prices in the Appalachian Basin’s trading hubs with the benchmark spot price at the Henry Hub in Louisiana.
As you will note, only the TCO Pool, located in Southwestern Pennsylvania and West Virginia (as shown in green on the above map) has mirrored the Henry Hub benchmark price. This price stability is due to the TOC’s access to a more diverse pipeline network reaching multiple markets in the Northeast and Midwest.
According to the EIA, there are currently 11 major pipeline expansion projects in various stages of completion that could potentially increase pipeline takeaway capacity from the Marcellus region to markets in other parts of the county by approximately 3 billion cubic feet per day. Some of these expanded pipelines are schedule to be operational by the end of 2015. The ability to move natural gas from the Marcellus play to other areas of the country should help suppliers stabilize the current spot price volatility.
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