West Virginia natural gas production rises sharply during first full month of MVP

Natural gas production in West Virginia has stepped up notably since long-term contracts on the new Mountain Valley Pipeline started July 1, while spreads between Appalachian Basin gas hubs and the new Transco station 165 price have narrowed toward the end of the month.

MVP was placed into service June 14 and offered interruptible and short-term firm capacity for the rest of that month before long-term firm capacity obligations began July 1. Flows on the pipeline into its terminus at the Cherrystone interconnect with Transco averaged around 500 MMcf/d June 15-30 and picked up to almost 1 Bcf/d in July, Commodity Insights data showed.

The extra flows have coincided with a sharp uptick in regional production, particularly in the West Virginia side of the Marcellus Shale. Production in the state jumped to a record 9.2 Bcf/d in July, up from 8.4 Bcf/d in June, Commodity Insights data showed.

Total Appalachian production rose to 35.1 Bcf/d in July, up from just 33.7 Bcf/d in May but still below the monthly peak of 36.2 Bcf/d in December 2023.

Although the pipeline has capacity of 2 Bcf/d, Commodity Insights analysts estimate it has only lifted the Northeast production ceiling by around 700 MMcf/d for now because of capacity constraints at Transco station 165. The Southside Reliability Enhancement project, which has started construction, could boost the ceiling by another 160 MMcf/d, but the pipeline could realize its full potential when Transco's 1.6 Bcf/d Southeast Supply Enhancement project starts service, currently targeted for November 2027. The project is currently in the prefiling process with FERC and has already received some pushback from environmental groups.

EQT, the new operator of MVP after it completed the acquisition of Equitrans Midstream, plans to expand capacity to 2.5 Bcf/d. "We're excited to pursue that expansion as soon as possible," CFO Jeremy Knop told investors July 24. EQT would make sure "it was timed to come online with that expansion project on Transco to take all the gas," Knop said.

Prices

Cash prices at Appalachian hubs Eastern Gas South and Texas Eastern M-2 picked up towards $2/MMBtu in June after MVP started up, but have retreated back below $1.50/MMBtu in July.

Texas Eastern M-2 held an average discount of 47 cents/MMBtu to the new Transco station 165 price for July 1-31 flows, but it fell to 20 cents/MMBtu July 25-31, Platts data showed. Platts is part of Commodity Insights.

Knop said July 24 EQT had been modelling station 165 at a 20 cents premium to Texas Eastern M-2 and was "surprised" to see the spreads that wide, particularly in summer. "We've been encouraged by how much gas that market has been taking," Knop said. "So I think the benefit we might see in winter periods could be even better ... than what we have forecasted."