... Study Looks at U.S. Natural Gas Pipeline Reversal Race

BTU Analytics Study Focuses on U.S. Natural Gas Pipeline Reversal Race

North American Pipelines Business BreifsA new study by BTU Analytics, “A Firm Dilemma,” exposes how Marcellus and Utica producers’ infrastructure commitments set up a race to the bottom in a low commodity-priced environment where only the lowest-cost producers will survive.

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“A Firm Dilemma,” reveals how weak realized well-head prices in 2015 forced the end of the Marcellus and Utica shale E&P ‘growth at any cost’ era starting a new era of ‘costs limit growth.’ The legacy of investments and commitments made by E&Ps during the previous era now have to stand the test of time in a low-price environment including firm pipeline commitments.

This paper ranks Northeast E&P-specific fundamental analysis such as acreage quality, producer breakevens, pipeline commitments and hedging positions to highlight who is best positioned to enter into this new low-cost market era.

Key points:

  • Producers’ firm transport pipeline commitments will shift from being an asset to a liability as natural gas basis spreads and capital budgets tighten.
  • The best positioned Northeast producers already have the best rock under lease, inventory that provides room to run, capital to continue activity and, through high-grading, are in the process of forcing the market price to levels where 2nd tier producers cannot compete.
  • Enough low cost drilling locations remain in the Marcellus and Utica to only drill wells that breakeven at realizations of $2.50/Mcf and below through 2020.
  • Northeast basis will strengthen at the expense of Henry Hub, implying Northeast prices have limited upside to current levels.

This study includes five-year Henry Hub and basis forecasts; fundamental analysis on Cabot Oil & Gas, Range Resources, Southwestern Energy, Antero Resources, Rice Energy, EQT; hedging program analysis; infrastructure timing expectations and implications; and the impacts of LNG exports.

Based in Denver, Colorado, BTU Analytics provides independent fundamentals-based consulting and analytical reports on the North American oil, NGL, and natural gas markets.

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