West Virginia Sees Gas Output Growth Slowing

Citing West Virginia officials, S&P Global Platts writes that with the current round of pipeline buildouts nearly complete, the rapid increase in natural gas production and boost in prices realized by the state’s producers over the last several years are expected to slow. In a mid-January interview, deputy revenue secretary Mark Muchow said gas production in the Mountain State would continue rising through 2024, but at a slower pace than seen over the past several years.

Muchow and state budget director Michael Cook recently briefed lawmakers in the West Virginia Senate and House of Delegates on the state’s proposed fiscal year 2020 budget, which forecasts total revenue growth of about 2%. For several years in the early part of the current decade, West Virginia saw an increase in natural gas output in excess of 30% a year, Muchow said. State production data from 2017, the last year for which such data are available, suggests about a 12% year-over-year rise in gas production. We’re forecasting increases in the 5% to 8% range from 2017…through 2024,” he said.

Meanwhile, S&P Global Platts forecasts gas production in the state’s most prolific producing region, the wet-gas Panhandle, will continue on its current upward trajectory, increasing by more than 50% over the next five years. Platts Analytics projects—based on growth trends seen in the last two months—that output in the West Virginia wet region will climb to 5.5 Bcfd by 2024 from about 3.6 Bcfd currently.

With the development of the wet-gas region of the southwestern Appalachian Basin, natural gas production in the state has ramped up rapidly over the past decade, growing about 30-fold from about the 118 MMcfd seen in January 2008, according to Platts Analytics data. The wet-gas region has averaged roughly 3.6 Bcfd of dry-gas production over the past two months, with a full-year 2018 average of 3.5 Bcfd.

On the downstream side, Muchow said state officials expect the initial phase of construction of new take- away pipeline capacity in the state “to continue through the end of 2019 calendar and possibly into early 2020 calendar year.” While most major interstate pipeline projects designed to take natural gas out of West Virginia are on track to be completed soon, Muchow said one small but important project has been held up by a permit denial by Maryland. The project comprises a three-mile Columbia Gas Transmission pipeline designed to transport gas from a Pennsylvania line operated by Columbia Gas Transmission to the utility Mountaineer Gas in Morgan County, W.Va.

The additional pipeline capacity will give West Virginia producers access to markets on both the Gulf Coast and the Northeast, which is expected to have a bullish impact on gas prices over the forecast period. However, state budget officials expect prices to fall over the near term until those new markets become better established.

According to a report prepared by the West Virginia State Budget Office, average gas wellhead prices in the state, as measured at the Dominion South pipeline, rose to about $2.20/MMBtu in fiscal year 2017 from less than $1.30/ MMBtu a year earlier.

“After stabilizing at an average price of roughly $2/MMBtu in FY 2018, average prices for the first half of FY 2019 were roughly $3/MMBtu,” according to the 2019 West Virginia Economic Forecast. “In the early part of the forecast, we’re expecting natural gas prices to decline a little bit because we think that there is initially going to be a little market saturation,” Muchow said. “We have prices of natural gas down in 2019, to around $2/MMBtu.”

(SOURCE: The Weekly Propane Newsletter, February 19, 2019)