In a natural gas market where abundant supplies and a lack of demand have depressed prices, the scarcity of pipeline capacity has added to the complexity for buyers who must ensure daily deliverability to customers, a panel of executives said recently.
“When you talk about supply and demand in pricing, I have been in the business a long time, and I have seen it go up and down,” Patriots Energy Group executive director Mike Enoch told an audience at the LDC Gas Forums Southeast held in Florida last week.
Enoch said low prices tend to solve low prices, and high prices solve high prices “because the market does react to it.” However, “This is the first time you can throw pipeline capacity into the mix because it has been very hard to come by.”
Patriots Energy Group – a South Carolina-based joint action agency formed by groups of local community-owned utilities – is the purchasing and capacity holder for three gas authorities.
Lacking Pipeline Investment
The difficulty in booking natural gas capacity has been partly because 2022 saw the least interstate natural gas pipeline capacity added since the U.S. Energy Information Administration (EIA) began tracking state-to-state capacity in 1995. According to EIA data, five projects boosted interstate natural gas pipeline capacity by 897 MMcf/d that year, compared to 7.44 Bcf/d of added capacity in 2021.
The industry is attempting to rectify the situation. New pipeline projects are in various stages of development. The Mountain Valley Pipeline (MVP) project would move Appalachian Basin producers’ supply to serve Southeast demand. Meanwhile, projects, including MPLX LP and WhiteWater Midstream LLC’s Matterhorn Express Pipeline, would add Permian Basin takeaway capacity.
The latest developments suggest the long-delayed MVP could be completed and startup begin shortly. The project developers asked the Federal Energy Regulatory Commission in a filing Monday (April 23) to make a decision by late May to put the project into service.
“I think it is going to be interesting to see what is going to happen with the MVP,” said Duke Energy Corp.’s Sarah Stabley, director of Gas Supply Optimization & Pipeline Services, who joined Enoch on the buyer’s panel. MVP could relieve constraints, or it could do little to boost supply given additional constraints further down the pipeline.
But before pipeline expansions are complete, the challenge of finding capacity to move supply to demand increases the intricacies of managing natural gas supply and capacity, Enoch said.
Enoch said while capacity and supply can be bought, sold and traded, the challenge becomes how to align capacity and supply to ensure a steady stream of gas to the customer.
Enoch added that pipelines can issue operational flow orders (OFO) for short- or long-term contracts and sometimes issue double-sided OFOs, requiring distribution companies to stay within a window.
Planning becomes an essential part of buyers’ supply and deliverability puzzle as they navigate the particularities of the market to meet customer demand.
“When we think about capacity planning, everything we are hearing about pipelines, infrastructure and higher utilization among the pipelines, the planning process is the most important thing for us,” said Atmos Energy Corp. director of Gas Supply and Services Kenny Malter.
Malter said Atmos, the country’s largest natural gas-only distributor, benefited from “a lot of flexibility in the pipeline infrastructure” in the past. Pipeline operators “could give us a lot of flexibility that doesn’t exist when pipelines are full in both directions,” Malter said.
Capacity is stretched thin, and distribution companies must build flexibility into their systems. Atmos has become more dependent on storage and has its own facilities.
“It’s important that we have the right amount of storage as new stakeholders,” including LNG and electric generators, “are buying storage as well,” Malter said.
He said currently the market is rich in supply. The concern, however, is that natural gas could experience increased volatility as critical infrastructure is needed to handle expansion.
Highlighting Price Volatility
“When you think about capacity, small disruptions can cause great issues. Unplanned maintenance or a huge pipeline out in the Permian can knock off half a Bcf or a Bcf. That could have a huge impact on the market,” Malter said.
Dallas-based Atmos is currently buying gas at negative prices at Waha, which is “a big purchase area” for the utility. Atmos delivers natural gas to more than 3 million distribution customers in eight states located primarily in the South.
The daily regional benchmark Waha hub climbed 54.0 cents on Monday (April 23) to negative $1.015/MMBtu after several days of clawing back from averages below negative $3.00. Prices there have been mired near or in negative territory for over a month.
Although West Texas was the only market where prices sank overwhelmingly into the negative, prices have been depressed across all regions. Henry Hub added 18.0 cents Monday to an average of $1.630, according to NGI’s daily cash market prices.
But low prices are only short term, Enoch said.
“Prices will come back because the market will react. I just can’t tell you, and you can’t tell me when that will happen.”
