An East/West Divide
Growing production across the border in Colorado (DJ Basin) and in the Powder River Basin and continued growth in production in the Marcellus (pushing back Rockies supply) is creating bottlenecks for gas in SE Wyoming. As you can see below, the difference in pricing between Cheyenne and Opal was $0.70/MMBtu on October 2, 2019. Pipelines traditionally flowing West to East are working to reverse traditional flows. Weakening finances for producers and limited capital market access is hindering the traditional “producer push” to finance long term contracts necessary to fund expansion and reversal projects in the Rockies. Tallgrass Energy is focused on its Cheyenne Connector project which will move 800,000 MMBtu/day initially from the DJ Basin in Colorado to Cheyenne where supplies will interconnect with Rockies Express Pipeline as well as
other interstate pipelines in the area. Discussions with Wyoming Interstate Pipeline and Rockies Express Pipeline indicate that westward flowing capacity can be designed but it comes at a cost of approximately $0.15 on REX and WIC, Additionally, in order to get to the Opal area and interconnect with Kern and Ruby pipelines an expansion of Overthrust Pipeline is necessary. Overthrust recently held an open season for approximately 130,000 MMBtu/day of westward flowing capacity but does not have sufficient subscriber interest in the project to economically justify the expansion.
For the month of November, 2019, the NYMEX natural gas contract settled at $2.597 per MMBtu. Natural gas prices reported by Platt’s Gas Daily for flow on November 25th, 2019 were as follows:
Pricing Point Price ($/MMBtu Basis to NYMEX Henry Hub Hub $2.55 Cheyenne Hub (SE Wyoming) $2.22 -$0.33 Opal Hub (SW Wyoming) $3.59 $1.04 Chicago $2.48 -$0.07 SoCal (Southern California) $3.37 $0.82 Waha (West Texas) $1.55 -$1.00 Asia (January delivery LNG) $5.89 +$3.34 Central Mexico (Tula) $4.14 +$1.41
1 – Early cold weather has given natural gas prices a rally over the last few weeks, but a return to normal weather has caused prices to settle back. 5-year pricing is still insufficient to support profitable growth for natural gas producers. Continued growth in LNG and Mexican exports will be necessary to provide any pricing relief outside of cold weather. Note that Opal pricing is driven by continued outages in Canada as a result of a pipeline explosion last year about this time. Additionally, SoCal Gas continues to struggle to return infrastructure into service as a result of pipeline.
NYMEX crude oil prices for November delivery settled at $57.77 on November 22, 2019. Brent pricing for the same period settled at $62.37. Southwest Wyoming Sweet crude was trading at $50.83 (Plains All American).
2 – Long-term natural gas price differentials for Wyoming using a composite price for all of Wyoming
3 – Natural gas storage inventory for the week ending September 2019 sits at 3.205 Bcf and is rapidly approaching the five-year average for inventory builds.
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4 – Temperature forecast for Nov-Dec-Jan 2019-20
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5 – Precipitation forecast for Nov-Dec-Jan 2019-20
6 – Current snowpack status in the western US except for most of California. Snowpack is well above normal in most basins