Atlantic Sunrise doubles prices in Appalachia

Williams' 1.7 Bcf/d (48mn m³/d) Atlantic Sunrise natural gas pipeline project has had a strong impact on Appalachian prices this year and is expected to unleash even more output from the already prolific shale region.

Spot prices at the Leidy Line index since Atlantic Sunrise started up on 6 October have averaged $3.43/mmBtu, up by half from their prior 37-day period value, and more than double their year-earlier average of $1.41/mmBtu. The index topped $4.58/mmBtu earlier this month, an 11-month high and the highest price level reached there without the support of an extreme winter cold event, such as experienced in January 2018 and in January 2014.

The $3bn pipeline project boosted the total capacity on Williams' long-haul Transcontinental Gas pipeline (Transco) to 15.8 Bcf/d, making the largest-volume pipeline system in the nation even larger. Atlantic Sunrise spans 183 miles (295km) from northeast Pennsylvania through the state to connect with Transco's mainline, effectively creating a shortcut for Marcellus shale gas to reach the new Cove Point LNG export facility in Maryland, as well as more lucrative markets in the Gulf coast.

Top producers operating in northeast Pennsylvania — an area where gas previously had no easy path to market centers — eagerly awaited the project's full in-service date, with one producer lowering output guidance after the US Federal Energy Regulatory Commission (FERC) stalled on approving its full start-up. The expansion began partial flows of 550mn cf/d in June, and was ready to ramp up to full capacity in August but did not receive FERC approval until early October.

Cabot Oil & Gas is contracted for 700mn cf/d on the project and reported its realized prices more than doubled once it started flowing. The company had to cull third quarter output expectations amid the project's delay, but now plans to boost its output by as much as 25pc next year.

Seneca Resources is shipping about 37pc of its total output, or 189mn cf/d, on the project, and expects to boost its overall production next year by 24pc.

Producer Range Resources reported higher in-basin pricing driven by Atlantic Sunrise, which contributed to a 27pc increase in cash flow for the producer during the third quarter compared with a year earlier.

Production in the Appalachia shale region in October topped 29.6 Bcf/d according to estimates from the US Energy Information Administration, and is expected to rise above 30 Bcf this month.

Despite the rising production rates, Argus forwards suggest demand for northeast Pennsylvania gas will continue to grow. Leidy Line prices are averaging $4.04/mmBtu for the balance of the winter period, 17pc higher than their average since Atlantic Sunrise reached full capacity, and 58pc higher than their spot price average from January-March 2018.

Williams is now planning an additional 580mn cf/d project known as Leidy South that will ferry more northeast Pennsylvania gas to mid-Atlantic markets. The project is targeting an in-service date during the fourth quarter of 2021. Cabot has committed to about 250mn cf/d of capacity on that expansion.