Appalachia Production vs Capacity: Natural Gas Price Changes Could be in Our Future

For a decade, the Appalachian gas producing region (formally Marcellus and Utica Shales), has been scrambling for infrastructure expansion. While initially the Appalachia region had a demand for natural gas that far outpaced local supply, the introduction of shale production and a host of technological advancements reversed that trend. Ever since this change occurred, pipelines in Appalachia (which were constructed when the region was more interested in domestic imports than exports) have struggled to keep up with supply. The bottleneck created by this imbalance drove down regional prices for many years as producers attempted to sell off locally what they could not transfer to other parts of the country.

Available Capacity and Appalachian Production (Bcf/d)
appalachian gas

There have been significant efforts made to more closely align the regions distribution capacity with its production potential, including both the creation of new pipelines and the updating of current ones. Many of those projects however, have been delayed or divided, meaning that suppliers have easily kept pace with expanding pipelines and are forecasted to once again reach max capacity in Spring of 2020. There is some speculation that new scrutiny by investors will stop producers from continuing the rapid expansion, but the pattern of filling all new capacity has so far remained consistent.

Bottom Line:

If suppliers continue to increase production alongside capacity, there is the potential for prices to continue to increase in Appalachia as the market becomes less flooded. Consequently, prices in surrounding regions may see price decreases as more gas is sold in markets outside the Appalachian region.

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