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Shall We Dance?

TCO and Dominion’s Impact on Storage in the Northeast

June 30, 2016 | By Callie Kolbe

New supply and demand dynamics within the Northeast region this June have caused prices in key hubs in the region to reach levels last noted over a year ago.

Last week’s Get the Point analyzed the contribution of growing power demand in the Northeast, especially the Greater Appalachia sub-region, for its influenceo n prices. Appalachia not only supplies the majority of production to the Northeast but is also becoming the region’s largest power consumer.

Increased power demand has become a defining feature of the Northeast this past month. Within the last 30 days, demand for power burn in the Northeast has increased to an average of nearly 7.3 Bcf/d, which is 1.6 Bcf/d above levels from May.

Other fundamentals have also been at play. During the same time, dry gas production in the region has remained relatively flat at 22 Bcf/d, while net storage injections have increased by an estimated 1.5 Bcf/d to over 5 Bcf/d. As a result, PointLogic is seeing a net injection rate well above the prior five-year average for the month of June.

Columbia Gas (TCO) and Dominion (DTI) storage facilities have played an important role in pushing the region’s injection rates up through the month of June. This edition of Get the Point will explore how the fields along TCO and Dominion’s system have contributed to the tighter balance in the Northeast and what to expect for the remainder of the summer injection season.

Northeast Region

TCO and Dominion Heavily Influence Northeast Storage

Within the context of the Northeast, increased injection activity along TCO and Dominion has a significant impact. On a monthly basis, TCO and Dominion together contribute over half of the region’s net storage injections.

Using EIA’s state working storage inventory data (which lags by three months), net monthly storage activity for the Northeast can be determined. PointLogic defines the Northeast as Maine down to Ohio, Kentucky and Virginia (see map above). By comparing the monthly state data to monthly storage activity along TCO and Dominion, it quickly becomes clear just how important these two companies are within the region’s natural gas storage market. Dominion represents nearly 30% of storage activity in the Northeast, while TCO makes up over 20% of the activity.

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Storage Surplus Along TCO and Dominion

After the mild winter 2015-2016, storage levels across TCO and Dominion entered the injection season (April 1, 2016) with a significant surplus to historic figures. TCO’s inventory began the season at nearly 89 Bcf, which was 35 Bcf above the prior five-year average; Dominion began the season at 108 Bcf, or just over a 33 Bcf surplus to the prior five-year average.

Then, both TCO and Dominion storage injection rates dwindled well below the prior five-year average throughout April and May, which tightened the fields’ surpluses to the prior five-year average. As such, TCO and Dominion began June at roughly a 15 Bcf and 16 Bcf surpluses, respectively.

However, June has been a different story. Through June 24, the injection rates have significantly increased, bringing both TCO and Dominion back up to a surplus of over 17 Bcf (as of the storage week ended June 24) as compared to the prior five-year average.

Northeast Storage Surplus Mirrors TCO and Dominion

The Northeast region as a whole follows a very similar story to TCO and Dominion.

As the graph below shows, the region began the injection season on April 1 at roughly 140 Bcf surplus to the prior five-year average. Like TCO and Dominion, the region’s injection rates fell significantly below the prior five-year average throughout April and May, leaving inventories to start June at only a 71 Bcf surplus to prior years. Then in June, injection rates increased and brought the surplus back up to nearly 80 Bcf (as of the storage week ended June 24).

 Northeast Inventory (April-June 2016)

Power Demand and Storage Injections Pressure Regional Hubs

Key spot prices in the Northeast at Dominion South and TCO have reacted to these changes in storage. Prices have rallied in June to their highest point in over a year. Combined with record power demand and surging storage injection activity, the upward pressure on spot prices this June make sense.

The question is: Will the upward pressure on these key hubs continue through the summer? Power demand, as noted in last week's Get the Point, will surely be one factor. So will be gas production and injection activity, as seen in the graph below.

TCO and DOM Injection Rate vs. Spot Prices April-June 2016

If TCO’s injection rate remained at the current June average of 7.4 Bcf each week, the facility would reach its maximum fill of 245 Bcf by mid-September. Likewise, if Dominion’s injection rate continues at 10 Bcf per week, the facility would reach its typical maximum fill by the last week in August.

However, as the summer progresses, injection activity along both TCO and Dominion typically soften. The graph below shows that during the last five years, the injection rate from July through October along Dominion has fallen to just under 6 Bcf per week, and by 5.6 Bcf per week for TCO.

Importantly, however, the graph below also shows that TCO's and Dominion's summer storage injection cannot mirror the prior five-year injection rates (black dotted line) this year. Here's why: inventory would exceed capacity limitations (red line) by October.

TCO and Dominion Storage Inventories

In other words, we have to see softer injection rates. These lower-than-historic injections, coupled with a continued inventory surplus throughout the remainder of the summer, would likely lead to a pullback in prices from current levels. Ultimately, this leaves power demand in July and August as a critical factor. 

PointLogic will be carefully monitoring and modeling power demand trends in the Northeast, as well as production and injection, as we approach the peak power demand time of the year. In addition to Get the Point coverage of this critical issue, our daily reporting and our soon-to-launch Northeast Weekly Report will provide a deep dive into this key market.

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