S&P Global Platts – The associated natural gas production declines across US plays due to the crude price collapse and the coronavirus pandemic are starting to hit the SCOOP/STACK in Oklahoma, driving basis prices at regional hubs higher.
Production declines are likely driving the bulk of recent strength relative to Henry Hub for NGPL, Midcontinent and Oneok, Oklahoma, despite occurring while Midship Pipeline ramps up flows, according to S&P Global Platts Analytics.
Cheniere Energy’s Midship Pipeline, the nearly 200-mile 1.4 Bcf/d capacity pipeline moving gas out of the SCOOP/STACK to markets in the US Gulf Coast and Southeast, began initial flows April 21. After a sporadic first five days, followed by no flows for three days, flows on the pipeline have steadily increased the last seven days to an average of 260 MMcf/d, according to Platts Analytics data. Deliveries from the pipeline hit a fresh high Tuesday, reaching 533 MMcf/d.
This ramp-up has occurred at the same time as the Oneok and NGPL Midcon hubs saw stronger basis prices. Oneok had averaged 47 cents/MMBtu below Henry Hub in the 30 days prior to Midship flows getting underway. Since then, the basis has averaged minus 23 cents/MMBtu and peaked at minus 9 cents/MMBtu, its highest value since December 2016.
NGPL Midcon has seen similar support. In the 30 days prior to April 21, its basis averaged minus 39 cents/MMBtu. Since then, it has risen to minus 19 cents/MMBtu and hit minus 9 cents/MMBtu on Tuesday, its highest value since March 2019.
While the extra takeaway capacity appears to be the primary driver behind stronger basis prices in the region, it likely is a secondary factor, according to Platts Analytics. Declines in flows along Enable Pipeline, to 1.2 Bcf/d from about 1.4 Bcf/d since Midship came online, suggest that rather than helping to move additional gas out of the region, gas is instead being diverted from Enable to Midship.
Instead, the uptick in NGPL Midcon and Oneok prices is likely driven by lower production out of the SCOOP/STACK. Platts Analytics’ modeled production estimates show Midcontinent Producing region output declined to an average of 6.7 Bcf/d over the past two weeks from 7.3 Bcf/d in the 30 days prior.
Within the region, the SCOOP/STACK saw production drop to 797 MMcf/d from 990 MMcf/d in the prior 30 days. SCOOP/STACK production fell to 628 MMcf on Tuesday, the lowest daily value since August 2018. Modeled production for the entire region fell to 6 Bcf/d, the lowest in three years.
The production dip has led to declines in outflows from the region. Midcontinent Producing to Southeast flows fell to an average of 1 Bcf/d over the past 14 days from 1.2 Bcf/d in the 30 days prior, according to Platts Analytics.
While Midship is expected to see a continued ramp-up in the coming weeks, it will likely be from diverted gas rather than new production and therefore unlikely to be driving basis gains.
Instead, Platts Analytics expects Midcontinent production to see further declines in the coming months, falling to 4.1 Bcf/d in June from April’s 7.4 Bcf/d. This production decline should help boost basis prices for both the NGPL Midcon and Oneok hubs to new highs in the coming weeks, according to Platts Analytics.
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