U.S. shale gas build-out narrows Henry Hub differential

Monday, 04 February 2019
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The spread in natural gas spot prices between the Henry Hub in Louisiana and the Appalachian region continued to narrow over the year just past. Prices fell at Henry Hub throughout December, and in early January 2019, they were at around $2.79/mmBtu while Appalachian prices kept trading at a discount due to pipeline constraints.

Record shale gas production in Appalachia, combined with limited pipeline capacity to transport gas produced at Marcellus Shale onwards to centres of consumption have kept regional spot prices trading at a discount to the bellwether Henry Hub since 2014. Build-out of pipeline capacity in the Appalachian continued during 2018 to bring natural gas to demand centers outside the region, decreasing the price difference between the two.

When final data becomes available in the coming months, the Energy Information Administration (EIA) expects that US natural gas production will have reached record levels in 2018.

“Through the first 10 months of 2018, dry natural gas production in the U.S. was 11% higher in 2018 compared with the same period in 2017,” it stated. “Growth has been driven by production increases in the Appalachian Basin in the Northeast, the Permian Basin in western Texas and New Mexico and the Haynesville Shale in Texas and Louisiana.”

Spikes in gas prices were also experienced in other regions in the Lower 48 states: “Daily average natural gas spot prices at the SoCal Citygate in Southern California experienced volatility throughout 2018 as ongoing pipeline capacity constraints limited natural gas supply in the region,” the EIA said. In addition, a pipeline rupture on Enbridge’s 2.9 Bcf/d British Columbia Pipeline on October 9 limited U.S. imports from Canada, resulting in reduced supply to the Pacific Northwest and contributing to increased prices. 

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