In recent months, 1.6 Bcf/d of Rockies natural gas slammed into the northeast market at Lebanon, OH, launching an interregional battle for market share that is likely to persist for years. The new Rockies supply arrived at approximately the same time that deliveries into the Northeast from Midcontinent shales are increasing while local Appalachian production is ramping up. New pipeline projects designed to debottleneck regional constraint points are shifting flow patterns and creating new marketing opportunities, while increasing gas-on-gas competition in the largest and most dynamic natural gas market in North America.
The culprit behind the growth in supply is unconventional gas – primarily from shales and tight sands. The growth in these volumes since 2005 has been astronomical and has the potential to continue for an extended period. The issue is market access. Unless increasing production can be delivered in relatively unconstrained pipeline capacity to markets with enough demand growth to absorb new supplies, prices could experience significant downward pressure. To address this risk, suppliers from all three growth regions have targeted the same customer base located in the premium Northeast market. Unfortunately for gas suppliers, serious limitations exist to the incremental volume of gas that can be absorbed in this region.
To understand these market dynamics, BENTEK has developed the Catch the Wave analytics model which depicts the market implications of existing west-to-east pipeline capacity constraints across the Northeast and provides a structure for analyzing pipeline expansion projects aimed to debottleneck those constraints. The model is based on an aggregation of flows and capacities on the 19 interstate pipelines that serve the Northeast region. The flow and capacity data on these pipelines is then segmented into “constraint barriers,” which act as boundaries across multiple pipeline systems limiting the quantity of gas that can move to markets. We call each of these four constraint barriers a “Wave” and have identified four key Waves in the Northeast natural gas market.