Gas producers ramping up for Atlantic Sunrise

Natural gas drilling activity in the US northeast is ramping up ahead of the full start-up of Williams' 1.7 Bcf/d (48mn m³/d) Atlantic Sunrise pipeline project later this month, which will allow inexpensive Appalachian gas to reach new markets on the Atlantic seaboard.

Independent producers Cabot Oil & Gas and Seneca Resources have capacity on the $3bn line, which will expand the Transcontinental Gas (Transco) pipeline in order to allow gas to move from the Marcellus shale in northeast Pennsylvania to Transco's compressor station 195 in southeastern Pennsylvania. The 183-mile (295km) expansion also allows for Appalachian gas to reach the new Cove Point LNG facility in Maryland, which exported an estimated 23.5 Bcf in May.

Atlantic Sunrise began partial flows of 550mn cf/d earlier this summer and is expected to reach design capacity in the second half of August.

Total rig counts for the top three shippers on the line — Cabot, Seneca and privately-held Chief Oil & Gas — have nearly doubled in the months leading up to Atlantic Sunrise's start-up, according to BTU Analytics.

Dry-gas production in June from the Marcellus shale, the largest US gas field by volume, topped more than 20 Bcf/d, up by 1.4pc from the prior month and 18pc higher than a year earlier, according the US Energy Information Administration (EIA). Gas production in the Marcellus likely received a boost in that month as Atlantic Sunrise began partial flows, providing crucial takeaway capacity for producers there.

Cabot has contracted for $350mn cf/d of capacity on Atlantic Sunrise, and has a 20-year supply agreement for its flows to Cove Point with Pacific Summit Energy, the North American marketing and trading affiliate for Japanese trading company Sumitomo. Cabot also has a 15-year agreement with distributor Washington Gas for 500mn cf/d via Atlantic Sunrise, among other sales agreements that total up to 1 Bcf/d of commitments on the expansion.

Cabot has said it will fulfill its commitments initially with a combination of redirected volumes and new production, "so we should not expect a one-for-one bump in new production with takeaway capacity coming on line," BTU Analytics said.

National Fuel Gas' producing subsidiary Seneca has capacity on the line as well, and earlier this year said it planned to develop its eastern Pennsylvania acreage further specifically for the arrival of Atlantic Sunrise. National Fuel Gas is also working in tandem with Transco on expanding its Leidy Line in Pennsylvania by 800mn cf/d, which should boost Seneca's transport on that line by 10pc to 319mn cf/d.

Once Atlantic Sunrise begins full flows Tennessee Gas pipeline zone 4 Marcellus prices should narrow their discount to the Henry Hub. That index since the beginning of July — after the project began partial flows — has averaged a 53¢/mmBtu discount to the US benchmark, narrowing from $1.03¢/mmBtu a year earlier.