EQM announcement implies EQT will curtail up to 1.4 Bcf/d of production.
EQT announced that they began curtailing an unspecified amount of production in Ohio and Pennsylvania on May 15. Pipeline flows confirm the drop.
An expectation of higher future natural gas prices coupled with concerns of COVID-related demand destruction were the largest drivers behind EQT’s decision, according to Reuters on May 19. “To best capture value from this scenario, starting May 16, we began to temporarily curtail production from certain of our wells in Pennsylvania and Ohio, thereby deferring sales into the more favorable gas pricing environment,” according to Reuters.
On May 19, EQM Midstream Partners (EQM) posted an 8-K with the SEC, notifying shareholders that their largest producing customer for the pipeline had notified them of 1.4 Bcf/d production curtailments. They would be revising their 2Q2020 earnings forecast because of lower net income attributable to ETRN (Equitrans Pipeline).
While the EQM 8-K report did not name the customer, the timeline would be consistent with when EQT announced the curtailments began and when lower volumes were observed on the pipeline. Three gathering points flowing to the Equitrans pipeline are flowing nearly 765 MMcf/d less than only a few days earlier. EQT, a former parent company of EQM, is responsible for the reduction in flows according to data provider PointLogic. This is strong evidence that EQT is the company specified in the 8-K. If the 1.4 Bcf/d curtailments are accurate, this would equate to around 33% of EQT’s 4.2 Bcf/d production observed in 1Q2020.
As seen in the chart above, production in Pennsylvania and Ohio has decreased by 1.4 Bcf/d. Production has apparently already decreased by the amount specified by EQM since May 15. It remains uncertain whether all of the decreased production belongs to EQT.
A 1.4 Bcf/d supply reduction is likely to support Appalachian prices in the short-term. If those volumes are “saved” for better pricing, as EQT stated, the supply could return in winter and would keep prices from rising as readily.
In fact, the price spread between summer 2020 and winter 2020-2021 tenors has already tightened. The chart to the right shows that the AUG-JAN spread has narrowed in the last several trading sessions.
The supply reduction also has an effect on the entire U.S., including Henry Hub. These Appalachia curtailments come while production cuts in oil-focused plays are already around 5 Bcf/d. The temporarily halt of 1.4 Bcf/d in production by EQT, in addition to the 5 Bcf/d of supply removed in the oil-focused plays will offset some of COVID-19’s impact on energy demand.