Appalachia Gas Price and Fundamentals

Appalachia Gas Price and
Fundamentals
April 03, 2023 | Jay Stevens

Eastern Gas (formerly Dominion) South Prices have improved lately
as minimal production growth and local demand support prices.

Recent Situation – The seasonal strip chart below is a great tool to
see how prices reacted following recent announcements. Note: We
use Eastern Gas to discuss price action in Appalachia, serving as a
proxy to other named hubs.

     (April 4, 2023) Federal courts rejected a crucial water-crossing permit for
     MVP, further delaying the pipeline. Environmental groups alleged that
     the West Virginia Department of Environmental Protection violated the
     Clean Water Act by issuing the permit. The US Fourth Circuit Court ruled
     against MVP and vacated the permit.
     (March 30, 2023) The US Fourth Circuit Court of Appeals has ruled in
     favor of MVP in a lawsuit regarding water crossing permits. A second
     lawsuit over permits is pending review by the court, which is the last
     lawsuit to be decided. Once FERC and the US Forestry Service reissue
     their biological opinions MVP should have all the necessary permits to
     finish construction.
     (March 9, 2023) Congressional Republicans are advancing an energy-
     permitting bill that was believed would include a provision specifically
     mentioning the Mountain Valley Pipeline however, it has been reported
     that the bill will not include specific language relating to MVP.
     (February 23, 2023) Equitrans Midstream reaffirmed their 2H2023
     expected start date for the 2 Bcf/d Mountain Valley Pipeline in their
     quarterly earnings call. The company said they expect all necessary
     permits to be in place in time to mobilize construction crews in summer
     2023, allowing for an in-service date in the second half of the year.

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(January 13, 2023) The Federal Energy Regulatory Commission (FERC)
    approved Transcontinental (Transco) Gas Pipe Line’s 829 MMcf/d
    Regional Energy Access Expansion. The project will bring additional
    takeaway capacity to core production areas in northeastern
    Pennsylvania and reinforce reliable service during peak winter demand
    (December 6, 2022, Argus) U.S. President Joe Biden wants to use an
    annual, must-pass defense policy as a vehicle to pass U.S. senator Joe
    Manchin's legislation to expedite energy infrastructure before the
    Republicans take control of the house on January 3rd. The bill would
    effectively approve the $6.6 B, 2-Bcf/d Mountain Valley Pipeline (D-West
    Virginia)
    (October 25, NGI) - MVP withdraws eminent domain actions required for
    work to continue on the Mountain Valley Pipeline Southgate expansion
    project. The project would expand the Mountain Valley Pipeline by 75
    miles into North Carolina to allow access to consumer markets. The
    company says that the project is still expected to be completed and will
    resume work once more of the necessary permits are received.
    (September 12, NGI) – Sen. Joe Manchin (D-WV) could unveil more
    pipeline reforms in this month’s stopgap spending legislation, known as
    a continuing resolution (prevents government shutdown), as politicians
    convene to confirm the budget for 2023. The pipeline-friendly
    resolutions drew heavy criticism from members of Manchin’s own party.
         Manchin wants to modify the Clean Water Act, establish limits on
         environmental lawsuits, set timelines for environmental reviews of
         large industrial projects, and allow the acting U.S. president to
         prioritize some infrastructure projects for fossil fuels and renewable
         energy.

Price Location: Eastern Gas (Dominion) South

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The Eastern Gas (Dominion) South point is located in the Appalachian Basin,
near Pittsburgh, PA, and serves as a liquid proxy for Northeast gas basis. The
Northeast gas market has undergone dramatic changes over the last several
years. The pipeline map shows the different corridors out of the Appalachian
basin as well as the Eastern Gas (Dominion) South pricing point. The shaded
circle is where the bulk of Appalachian supply is located.

Price

March 16, 2023 - Appalachian basis prices have dramatically improved YTD.
Prompt-month Eastern Gas basis has improved from -$0.90/MMBtu to start
the year to under -$0.38/MMBtu as of mid-March. The Eastern Basis
contraction has come on the backs of Hub's rapid decline. The April Nymex
contract has declined from $3.91/MMBtu on December 31 to $2.52/MMBtu as

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of March 16. At the same time, Eastern Gas basis for April has improved to -
$0.38/MMBtu from -$0.81/MMBtu. The improvement in Eastern Gas is similar
to many other basis locations in the Lower 48 as Henry Hub has come under
pressure.

It's possible that if Henry Hub were to rally, that Appalachia basis could come
under pressure in a reversal to the improvement witnessed year-to-date.
Appalachia's own regional supply/demand dynamics have been rather stable
as new pipeline projects have stalled, hindering the amount of growth the
gas play manages.

Market Influences

The in-service dates for the pipelines in the chart above were compiled using
each company's investor presentations.

The main pipeline that was supposed to bring additional capacity, the
Mountain Valley Pipeline, is not expected to come online until at least
Summer '23. The chart above shows the production forecast for Appalachian

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production from PointLogic on top of current existing and planned egress
capacity. There are several different production forecasts, but analysts'
general expectation is that Appalachian production will likely stay flat or
decline.

The basin's supply base has been growing rapidly for the last ten years and is
finally showing signs of depletion or at least slowing production growth.

Recent Infrastructure Announcements

Mountain Valley Pipeline – U.S. pipeline company Equitrans Midstream
Corp expects the Mountain Valley natural gas pipeline startup has been
delayed to the summer of 2023.

The Mountain Valley Pipeline (MVP) project is a natural gas pipeline system
that spans approximately 303 miles from northwestern West Virginia to
southern Virginia, and will bring nearly 2 Bcf/d of takeaway capacity from the
Appalachian basin to the mid-Atlantic markets. The pipeline has faced
numerous court challenges throughout the life of the project, which is why
the project is now two years beyond the original in-service date of 4Q2018.

PennEast Pipeline - Cancelled

Regional Energy Access Pipeline - Williams announced that the Regional
Energy Access Pipeline is on track to enter in-service during the fourth
quarter of 2024. The 829-MMcf/d pipeline will help serve residential,
commercial, and power demand in Pennsylvania, New Jersey, and Maryland.

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