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Natural gas price at Transco Z6 hub in New York much lower than Henry Hub. Why?


muscleman
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Can anyone please help me understand the situation here? It sounds like when gas is produced, it was selling at 2.82 in Henry Hub, but when it got transported all the way to New york, it traded at 1.5-1.8? Why would this happen? ::)

 

http://www.wsj.com/articles/natural-gas-futures-extend-slide-1437747176

 

"Physical gas for next-day delivery at the Henry Hub in Louisiana last traded at $2.82/mmBtu, compared with Thursday’s range of $2.90-$2.94. Cash prices at the Transco Z6 hub in New York last traded between $1.50 and $1.80/mmBtu, compared with Thursday’s range of $1.44-$1.53."

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The flow of gas historically has been to import foreign nat gas into the US via the Gulf Coast and then transport them to the rest of the country.  Now the Marcellus Shale is the most productive and least expensive region to drill for nat gas in the US (the world really).  If you think about it, PA, OH, and WV is a lot closer to New York.  Many pipeline companies are actually reversing flow from the Marcellus to the Southeast and the Gulf so that Nat Gas can leave the US and be transported to Europe and Asia.  This is my high level understanding. 

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Plus, its summer.  A non trivial amount of natural gas demand in the NE USA/Eastern Canada is for heating. In the south/gulf coast, its more power generation/industrial, which is more of a year round demand generator. (or even summer-biased for AC loads).

 

EnCana has said they're going to operate their Deep Panuke offshore gas platform only during the winter to maximize the value of their remaining resource.

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Guest notorious546

Pricing at TZ6, and the area is depressed due to egress constraints and lack of sufficient processing capacity. The pdf below has a chart on the bottom right, which highlights how much production volumes have grown in the area since 2010 when volumes were ~2.0 bcf/d to about 16 bcf/d today.

 

http://www.eia.gov/petroleum/drilling/pdf/marcellus.pdf

 

Well results have really been great, and today’s lower oil price environment is driving lower services costs for many E&P’s.

 

In short, supply has outstripped export capacity, resulting in depressed pricing on a relative basis.

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