Lack of Pipe Keeps Marcellus Gas Prices Low, EIA Says

Production from the giant Marcellus shale gas field in the northeastern US is at record levels, supplying more than 20% of domestic US gas production, but the lack of pipeline takeaway capacity continues to depress prices, the US Energy Information Administration (EIA) said November 7 in its latest Short Term Energy Outlook.

Last week, the EIA reported Marcellus production averaged about 20bn ft³/day in October but this week said the five-day moving average spot price in Tennessee Zone 4, in the northern part of the Marcellus, declined to just $0.68/mn Btu, the lowest in a year. Front-month futures prices at Henry Hub, meanwhile, continued to hover around the $3/mn Btu mark, as they have through most of this year.

As a result, the spread between Tennessee Zone 4 and Henry Hub widened on October 26 to $2.19/mn Btu, the biggest gap in a year. Late last year and earlier this year, the differential narrowed as new pipeline projects – including the Ohio Valley Connector, the Rockies Express and the Algonquin Incremental Market pipeline – entered service, the EIA noted.

“However, with increased natural gas production in 2017, takeaway capacity is constrained again,” it said, noting that relief is expected later this year and in 2018 as service ramps up on the Rover pipeline, the Cove Point LNG Facility in Maryland begins making deliveries and the Nexus Gas Transmission Project is completed.

Dale Lunan