- The lack of a sufficient pipeline network is causing natural gas production in America’s most prolific regions to decline.
- Natural gas prices have increased by approximately 50% since Russia’s invasion of Ukraine, yet some producers have been unable to take advantage of the rise.
- The pipeline shortage in Appalachia and West Texas could cause natural gas prices to climb even higher.
Since Russia’s invasion of Ukraine in late February, U.S. natural gas prices have increased approximately 50%, Reuters reports, and producers in Appalachia and West Texas are now struggling with a shortage of pipelines to move product to market
Appalachia accounted for 37% of total U.S. gas production, while West Texas accounted for another 19%, Reuters said, citing a warning by Bank of America analysts that Appalachia was nearing the limits of its takeaway capacity, heralding a potential halt to production growth.
In West Texas, home of the Permian shale play, pipelines are also filling up quickly, according to Reuters.
The pipeline shortage could lead to even higher prices for natural gas, which topped $7 per million British thermal units on the spot market at the end of last month. May futures also expired at a price above $7 per mmBtu, the Energy Information Administration (EIA) reported last week. Natural gas prices stood at $7.250 at the time of writing (8:18am EST).
The timing of this pipeline shortage comes as Europe is seeking alternatives to Russian gas, with U.S. LNG the preferred replacement. Currently, the U.S. has the capacity to export 9.8 billion cu ft daily, according to Reuters, while Europe’s largest economies import Russian gas at a rate of 18.3 billion cu ft daily. Pandemic demand recovery for natural gas, inflation and energy shortages at home will affect American consumers, Irina Slav writes in Oilprice.com
In another development, Oilprice.com also reports that requests for Russian natural gas deliveries for the EU via Ukraine and Slovakia on Monday reached their highest level since November 2021, sending European benchmark gas prices lower in early trade, despite the ongoing dispute over rubles-for-gas payments and Russia cutting off deliveries to Poland and Bulgaria.
Daily nominations for Russian supply through Ukraine and the Slovakian border point of Velke Kapusany hit the highest level since November 30, per data from Slovakia’s transport system operator Eustream cited by Reuters.
Russian gas flows via the Nord Stream pipeline to Germany were also up on Monday compared to Friday, according to Reuters estimates.
On the Yamal-Europe pipeline, gas flows continue in reverse mode from Germany eastwards to Poland, operator Gascade’s data seen by Reuters showed early on Monday.
Poland continues to receive Russian gas – via reverse flows from Germany—after Gazprom cut off direct gas supply to Poland in the middle of last week, Russia’s gas giant said.
Last Wednesday, when Russia halted gas supply to Poland and Bulgaria, flows on the Yamal-Europe pipeline from Germany to Poland jumped, according to Gascade cited by Reuters.
Gazprom cut off supply to Poland and Bulgaria on Wednesday, saying deliveries were stopped “due to absence of payments in rubles”.
Polish Prime Minister Mateusz Morawiecki described the halt of Russian supply as “a direct attack” on Poland and vowed that the country would not give in to “this blackmail”.
The EU is working to ensure alternative gas supply and pledged a coordinated response to what European Commission President Ursula von der Leyen also described as “yet another attempt by Russia to use gas as an instrument of blackmail”.
Despite the EU-Russia standoff on gas and the clear and present threat that Russia could cut off deliveries to other EU member states, Europe’s benchmark gas prices at the Dutch TTF hub traded lower early on Monday, amid higher nominations for Russian gas deliveries via Ukraine, according to Tsvetana Paraskova writing for Oilprice.com