Energy Market Commentary · October 9, 2018
Last week, FERC authorized Williams to place the remaining Atlantic Sunrise facilities into service, which they did on October 6th. This is big news for Northeast Pennsylvania where production growth has been limited by infrastructure constraints, and the facilities placed into service over the weekend bring another 1.15 Bcf/d of capacity out of the region (0.55 Bcf/d of mainline capacity was placed into service earlier this year). Several of the largest shippers on Atlantic Sunrise indicated that they will initially fill their commitments with a combination of new production and redirected gas, and in the first few days, gas in Susquehanna County has been redirected primarily from Tennessee (TGP) to help fill Atlantic Sunrise’s Central Penn North line.
As the chart above shows, production receipts are relatively flat versus a few weeks prior, and production even slumped at times in September when prices weakened (check out the latest Northeast Gas Outlook for more details). Production receipts have hovered around 10 Bcf/d for the last six months as shown in the chart below.
As we discussed in a previous analysis that applied learnings from Rover to Atlantic Sunrise, we are not expecting a one-for-one increase in production alongside increased capacity.
Atlantic Sunrise’s path bridges Northeast Pennsylvania with Southern Pennsylvania via the Central Penn South line stretching from Columbia County to Lancaster County at the River Road interconnect where gas can either continue along the mainline towards the Atlantic Seaboard or move into New Jersey. So far, flows along this segment are nearly 100% utilized, and Transco is constrained moving gas into Maryland. Flows into Maryland have been constrained outside of peak winter months since 2015, but expansions on the Transco mainline as part of Atlantic Sunrise have allowed flows to increase from 1.57 Bcf/d in April to 2.34 Bcf/d over the last three days, an increase of 0.77 Bcf/d.
East Coast pricing volatility is top of mind after this year began with the ‘Bomb Cyclone’ event that sent some prices well above $100/MMbtu, and with storage in the east well below 5-year averages, many are concerned about how prices would respond with severe weather this winter. While Atlantic Sunrise increases the gas supply in Southern Pennsylvania and Southern New Jersey (Transco Zone 6 South), there are other system bottlenecks to consider when thinking about Transco Zone 6 pricing. Check out the Northeast Gas Outlook for our views on how Atlantic Sunrise, Rover, Nexus, Gulf XPress, and other projects influence production and pricing through 2023.