A Firm Dilemma


Winners and Losers of the Natural Gas Pipeline Reversal Race

As midstream companies and producers scramble to transport low-cost natural gas from the Marcellus and Utica to new demand centers, an interesting dynamic has presented itself.  Firm transportation is no longer an asset, instead, it will be a liability as contracted capacity on many projects will overwhelm demand capacity at the end of the pipe.  At the same time, it’s getting harder and harder for E&Ps to tap the capital markets to fund growth.

To explain the timing and implications of these dynamics, BTU Analytics has written, “A Firm Dilemma” and is also offering ongoing updates and analysis through our Northeast Gas Quarterly service.  Key takeaways include:

  • Marcellus and Utica producers’ infrastructure commitments set up a race to the bottom in a demand limited environment closing any remaining North American natural gas arbitrage opportunities
  • Producers’ firm transport pipeline commitments will shift from being an asset to a liability as natural gas basis spreads and capital budgets tighten
  • The Northeast gas market is entering a new era where ‘costs dictate growth’. The days of ‘growth at any cost’ are over, and prudent low-cost operators will increasingly have the upper hand. However, hedges, select firm transportation agreements, and backlogs of drilled wells will lead to disproportionate impacts to some individual producers
  • The best positioned Northeast producers already have the best rock under lease, inventory that provides room to run, capital to continue activity and, through high-grading, are in the process of forcing the market price to levels where 2nd tier producers cannot compete
  • Enough low cost drilling locations remain in the Marcellus and Utica to only drill wells that breakeven at realizations of $2.50/Mcf and below through 2020
  • Northeast basis will strengthen at the expense of Henry Hub, implying Northeast prices have limited upside to current levels.

This study includes detail on all of the above points, 5-year basis forecasts, fundamental analysis on COG, RRC, SWN, AR, RICE, EQT and others, hedging program analysis, infrastructure timing expectations and implications, the impacts of LNG, and many other factors.

What Purchasers are Saying:

“This paper solved the missing piece of the puzzle, which for me, was the midstream component” – Equity Trader

“What I find really well done, beyond the depth of the analysis, is the writing brings the point back into focus for those of us that are not pure energy people.  That is really the sign of a cohesive and well written analysis”  – Equity and Commodity Trader

“Excellent, thought-provoking paper” Natural Gas Producer

“Very thorough” – Private Equity

“Clearly much more detailed and better researched than other papers I’ve purchased in the past” – Energy Focused Hedge Fund

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Author: Mason Ender

Mason Ender is a partner at BTU Analytics, LLC and managing director of business development overseeing client relations, marketing, and sales. Prior to joining BTU Analytics, he was the Manager of Sales for Bentek Energy, a division of Platts. Mason has worked with energy companies both domestically and internationally to implement effective fundamental energy analytic solutions. Mason also routinely presents energy market dynamics informing the market of upcoming risks and opportunities.