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U.S. natural gas Henry Hub premium over Marcellus on track for 5 year low

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Marcellus shale gas drilling rig

The premium of U.S. natural gas prices at the Gulf Coast over the Marcellus and Utica shale in Appalachia was on track to fall to its lowest since 2013 as more pipelines enter service, boosting takeaway capacity from the Northeast region.The new pipes have enabled producers to sell more of their low cost fuel from the pipeline-constrained Pennsylvania, West Virginia and Ohio region to other parts of the country where prices are higher.

The premium of the Henry Hub benchmark in Louisiana over the Dominion South hub in Pennsylvania averaged 49 cents so far in 2018. That compares with 85 cents for all of 2017 and $1 for 2016.

The premium has been declining since 2015 when it hit an all-time high of $1.14 before most of the big pipes taking gas away from the Marcellus and Utica entered service, leaving much of the region’s new production trapped.

Before 2013 when most gas consumed in the U.S. Northeast still came from the Gulf Coast, Henry Hub traded at a discount to Dominion South, according to Reuters data going back to 1992.The premium in 2013 was 21 cents.

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Big increases in takeaway capacity from Pennsylvania over the past few years include the 1.7-billion cubic feet per day (bcfd) first phase of Energy Transfer Partners LP’s Rover in 2017, and upgrades and reversals totaling 2.9 bcfd on Enbridge Inc’s Texas Eastern and 0.7 bcfd on Williams Cos Inc’s Transcontinental pipeline systems in 2015 and 2017.

One billion cubic feet is enough gas to fuel about 5 millionU.S. homes for a day.

Those new pipelines, additions and reversals have enabled energy firms in the Marcellus and Utica to boost production to a projected record high of 27.6 bcfd in April, according to federal data, representing more than a third of the nation’s total output.

That output became possible after producers figured out howto use horizontal drilling and hydraulic fracturing technologies to economically unlock more of the gas trapped in shale rocks.

Ten years ago, the Marcellus and Utica produced just 1.3 bcfd, accounting for only 2.5 percent of the total U.S. output at that time.

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