Across Appalachia, long-term rig decline seems to finally dragging production down, the London-based consultancy Energy Aspects commented.
Strong hedge books
“We believe that Appalachia shut-ins are unlikely unless prices drop well below $1.50/MMbtu, given the basin’s competitive advantages. Even then, many producers in the region have strong hedge books,” analysts said in a research note.
“Still, weak prices throughout H2-19 and into 2020 have caused producers to slash Capex and limit production guidance,” they cautioned.
Production seen to soon rebound
Work at TETCO – mainly repairs after an August 1 explosion near Danville, Kentucky – had caused 0.4 billion cubic feet per day (bcf/d) month-on-month decline from Appalachia to 32.4 bcf/d in December. Though works are nearing completion, analysts cautioned the pipeline’s 30-inch line is still subject to an ongoing corrective action.
Whether regional gas production rebounds as TETCO work eases will indicate the degree to which maintenance was limiting output. January to-date flow data points to another 0.3 bcf/d m/m decline to 32.0 bcf/d. Checks and repair is now limiting flows south to the Gulf Coast by 0.8 bcf/d.
“The effect on flow dynamics is minimal,” analysts noted, “given that gas is more likely to flow north for heating demand during winter..
“If later month receipts trend back towards the 32.5 bcf/d daily readings that were commonplace in early December, it can be assumed maintenance was the culprit for the weak output figures from late 2019,” analyst said. Meanwhile, “if flows stay depressed close to 32 bcf/d, it is likely that November was the high-water mark for Appalachia production for the foreseeable future, given current prices are unlikely to spur investment. If that is the case, Lower 48 gas supply will have lost a key sequential growth engine in 2020.”