Appalachian Growing Pains

The Daley Note: September 28, 2022

Following last week’s look at Antero Midstream’s (AM) acquisition of Crestwood’s (CEQP) Marcellus assets, East Daley is taking a broader review of Northeast supply and demand. We model Northeast production will be in maintenance mode in the near-term: producers are likely to hold volumes roughly flat barring Mountain Valley Pipeline’s (MVP) in-service.

Our Northeast Supply & Demand Forecast models Y-o-Y volumes (exit-to-exit) down 160 MMcf/d into 2022 and up 700 MMcf/d into 2023, with MVP tentatively coming online in 4Q23. We expect Appalachia rig counts to hold roughly flat as well, averaging in the mid-50s through 2023. On the midstream side, we forecast volumes on many systems to be flat from 2021 to 2022 averages. WMB has seen the most growth across its systems this year, totaling 0.5 Bcf/d of increased production. ETRN, for example, has seen declines of ~200 MMcf/d.

MVP’s outlook became further muddled this week, however. Bloomberg reported that Senate Majority Leader Chuck Schumer on Tuesday (Sept. 27) agreed to remove the MVP-directed “permitting reform language” from a U.S. government funding bill. The language would have required federal agencies to approve all remaining permits necessary for MVP’s construction. Senator Joe Manchin (D-WV) requested the language be stricken after failing to garner enough support.

Much of producers’ hesitation to grow comes from ever-present egress constraints and uncertainty around MVP. Associated gas supply coming from the Permian and increased activity in other gas basins could oversupply U.S. gas markets, further limiting demand for Northeast gas down the line. As the basin stands today, we estimate there is ~1 Bcf/d of egress capacity out of the basin with some seasonality causing available egress to fluctuate.

We tentatively forecast MVP to come online in 4Q23, and we believe that timeline is possible without the permitting language included in Sens. Manchin and Schumer’s bill. The pipeline is still struggling to secure permits for its remaining water crossings and its path through the Jefferson National Forest. – Alex Gafford Tickers: AM, AR, CEQP, ETRN, WMB.