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EIA Finds Appalachian NatGas Differentials Narrowing As Pipeline Capacity Expands

The Energy Information Administration (EIA) said on Tuesday that new natural gas pipelines have narrowed Appalachian differentials since January 2014, with some of the best gains coming this year.

Citing NGI’s price index data, EIA said in a note that through the first seven months of 2017 Dominion South prices in southwest Pennsylvania averaged 53 cents/MMBtu off the Henry Hub benchmark. That’s compared to the average difference of 76 cents/MMBtu at the same time last year. EIA added that differentials have narrowed similarly at other Appalachian hubs such as Transco-Leidy Line and Tennessee Zone 4.

Shale gas production in Ohio, Pennsylvania and West Virginia has grown rapidly in recent years, reaching 24.1 Bcf/d in July. Infrastructure hasn’t kept pace, but the basin is approaching a critical turning point with a bevy of pipeline projects scheduled to come online this year alone that represent another 7.2 Bcf/d of takeaway capacity.

Last year, EIA said 11 interstate projects were completed in the Northeast that added a little more than 4 Bcf/d. Much of that growth, however, was weighted toward the second half of the year. Dominion South differentials averaged 62 cents/MMBtu through the first six months of 2016. The majority of capacity that was added between July and December, such as the Ohio Valley Connector and the Rockies Express (Rex) Pipeline Zone 3 Capacity Enhancement helped narrow the spread between Henry Hub and Dominion South to 49 cents/MMBtu by the end of the year.

After the Algonquin Incremental Market expansion and the Rex expansion reached full capacity, EIA said, the average differential dropped to 33 cents/MMBtu through the first four-and-a-half months of 2017.

With regional production crawling back up again over the summer, EIA said differentials have since widened, but it expects that trend to ease again as pipeline projects continue coming online through the end of the year. Indeed, by mid-year, many of Appalachia’s leading producers reported better year/year prices and improved differentials. They continue to guide for modest to robust production growth heading into the end of the year.

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