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Northeast Pennsylvania E&P Pain Could Be Power Plants’ Gain

In the Cabot Oil & Gas earnings call last week, the management team talked about progress in getting NY DEC permits for the Constitution Pipeline construction.  The picture they painted is that either the permits are granted by December 31, 2015 or the project slides from an in-service date of November 2016 to November 2017.  If pipeline expansions headed to New York and New England face delays while other corridors to the Midwest, Southeast, and Atlantic Seaboard move forward as planned, the possibility opens up for Northeast Pennsylvania natural gas prices to remain very weak while other Appalachian price points such as Dominion South might tighten relative to Henry Hub more quickly.  While delays for pipes out of Northeast Pennsylvania would be painful for producers, it could provide a longer lasting benefit to power plants located in the area.

Cabot Oil & Gas, and other Appalachian producers, desperately need new incremental pipeline capacity to get out of Northeast Pennsylvania which has been hampered by extremely weak natural gas prices due to an abundance of production bidding for limited demand and limited pipeline take away capacity.  In fact, year to date, Tennessee Zone 4 outright price has averaged $1.13 per MMBtu or cash basis of ($1.57) while Henry Hub has averaged $2.70 per MMBtu.


In order to assess the timing of basis impacts, BTU Analytics has done, and continues to do, extensive work analyzing when and to what corridor Appalachian pipeline expansions will fall into.  In the chart below, notice the Southeast, Atlantic, and Midwest represent over 20 Bcf/d of the roughly 30 Bcf/d of total projects that BTU Analytics expect to get built.  However, according to Spectra Energy, push back by NGOs and other organizations have resulted in an increased number of filed comments for projects resulting in delays of at least three months on receiving key permits.  If one corridor faces more delays than the others, debottlenecking of the Northeast gas market will be asymmetric resulting in basis moves different than what are expected in today’s market view.


If we look at planned new power plant data from EIA form 860, we see an 825 MW planned combined cycle natural gas power plant called the Moxie Liberty plant.  This power plant, located in Bradford County, PA,  is sitting on top of some of the best natural gas producing acreage in Northeast Pennsylvania.  In fact, BTU Analytics’ production circumference modeling shows that the plant has over 0.9 Bcf/d of production located within a 10 mile radius and 4.8 Bcf/d within a 30 mile radius.  Of course a power plant of this size represents approximately 100 MMcf/d of demand (assuming a 7000 heat rate and over 80% average utilization) which is a net benefit to NE PA E&Ps who can produce incrementally more gas without committing to long-haul firm transport.


The market is watching Constitution as an analogue for other projects such as Kinder Morgan and Spectra’s projects planned to meet New England demand.  Time will tell but we should know more by December 31, 2015 and if a delay occurs does it set up a cascading effect where other projects also face similar delays?  Click here to learn more about how BTU Analytics can conduct power plant supply consulting work or, to follow BTU’s view on the Northeast pipeline build-out, request a sample of BTU’s Northeast Gas Quarterly Report.

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Andrew is the CEO at BTU Analytics, LLC and has worked in the energy and technology industries for over 20 years. Prior to BTU Analytics, he was the Senior Commercial Director of North American Natural Gas at Platts-Bentek Energy where he led the natural gas analytics team. Andrew’s past experience includes positions at Amoco Production Company and Constellation Energy. He holds a Masters in Energy and Environmental Analysis from Boston University and a Bachelors in Geology from Colorado College.

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