EQT Corp. said it would continue cutting 1 Bcf/d of production as U.S. natural gas prices remain near four-year lows, but management anticipates strong power generation demand in the coming years that has it planning an expansion of the Mountain Valley Pipeline (MVP).
After a seven-year battle and a congressional mandate rescued the system from legal and regulatory setbacks, MVP asked federal regulators this week for approval to start service by May 23. EQT, which announced in March it would acquire pipeline owner Equitrans Midstream Corp, said baseload power demand in the Southeast is poised to grow significantly with the data center and artificial intelligence (AI) booms.
“Due to the confluence of LNG facilities pulling gas South on Transco and power demand growth in the Southeast, we expect this region will become even more desirable than the Gulf Coast later this decade,” said CEO Toby Rice during a call on Wednesday to discuss first quarter results.
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The proliferation of data centers to power AI systems, along with other electricity-intensive markets like electric vehicles, are expected to add 10 Bcf/d of U.S. natural gas demand by 2030, according to EQT.
“This means growth in the power generation segment that exceeds liquefied natural gas exports as a bullish demand catalyst for the natural gas market this decade,” Rice added.
The 2 Bcf/d MVP system was designed to move Appalachian Basin natural gas to markets in the Southeast. Rice said the company would pursue an expansion with additional compression facilities to boost overall capacity on the pipeline to 2.5 Bcf/d.
Appalachian pure-play EQT has 1.2 Bcf/d of capacity secured on MVP. Along with other long-term sales arrangements it has with utilities, management expects the company’s firm transportation portfolio to better expose it to premium Transcontinental Gas Pipe Line Co. LLC (Transco) Zone 4 and 5 prices in the Southeast.
NGI’s Pat Rau, director of Strategy & Research, said the company’s decision to extend 1 Bcf/d of production curtailments through May was partly because of MVP not yet being in service. EQT, he said, has a strong incentive to defer that production until the system comes online.
According to NGI’s Forward Look, Transco Zone 5 on Wednesday was trading at a 54.0-cent premium to the Texas Eastern Transmission Co. M2, 30 receipt point in Appalachia for May. It is trading at a 73.0-cent premium for June, right around the time MVP is expected to be in service. Overall, the average spread between the two indexes is more than $1.25/MMBtu for the next 12 months.
EQT’s production cuts first started in February and amounted to a 30-35 Bcfe reduction in first quarter volumes. The company said the cuts could extend beyond May depending on market conditions. Persistently weak natural gas prices have led other exploration and production companies to reduce production and drilling activities.
“We think that you're going to continue to see cuts and discipline from other operators,” Rice said.
A hot summer could help cut into the U.S. storage glut, and lower prices are likely to stoke more power demand. In the meantime, however, management expects prices to remain low until later this year or next.
Since EQT, the nation’s largest natural gas producer, curbed production earlier this year, basis has strengthened across Appalachia. May to July basis at NGI’s Eastern Gas South index strengthened slightly day-over-day on Wednesday after the cuts were extended.
“So, it appears that traders have priced in the continued production curtailments, especially in light of these continued low prices,” said NGI’s Leticia Gonzales, price and markets editor.
EQT produced 534 Bcfe in the first quarter, up from 459 Bcfe in the year-ago period. Despite the cuts, volumes have strengthened since the company closed its acquisition of Tug Hill Inc.’s assets in West Virginia late last year.
The company is now guiding for 2.1-2.2 Bcfe of production this year, down from its previous range of 2.2-2.3 Bcfe to account for the curtailments. Capital expenditures are still expected to range from $1.9-2.05 billion.
EQT reported first quarter 2024 net income of $103.5 million (23 cents/share), compared to net income of $1.2 billion ($3.10) in the year-ago period. Last year, the company reported strong derivatives gains and higher realized prices.
Average realized prices during 1Q2024 were $3.22/Mcfe, compared to $4.11 at the same time last year.
