PITTSBURGH—The northeast Marcellus Shale represents a “world-class resource base with vast potential,” but current oversupplied market conditions pose significant challenges for some midstream operators, said Mark Mitchell, senior vice president with Crestwood Equity Partners LP, at Hart Energy’s Marcellus-Utica Midstream Conference & Exhibition held Jan. 26-28 at the David L. Lawrence Convention Center.

Crestwood operates several storage and transportation assets in the northeast Marcellus, including a storage facility “sitting right on the top of the core of the dry Marcellus” called the Stagecoach facility, according to Mitchell. Stagecoach can store 21.4 billion cubic feet (Bcf) of working gas and interconnects with Millenium Pipeline, Tennessee Gas Pipeline and Transco Pipeline. Other storage assets include its Steubenand Thomas Corners facilities.

Working with its Stagecoach facility, Crestwood has, over the last five years, developed a significant transportation business providing delivery alternatives for Marcellus producers, Mitchell said. Today, four major receipt points on its system are directly connected to upstream gathering facilities. Until recently, this resulted in 1.1 Bcf/d to 1.4 Bcf/d of direct supply feeding into the system and then moving to the downstream pipelines.

Those volumes have dropped off over the last few months as E&Ps have cut back production, and in some cases shut in gas, as they await new takeaway and a recovery in gas prices. Additionally, the warm winter and full storage have exacerbated the supply overhang, causing seasonal spreads to narrow. For example, October 2015 -January 2015 spreads were recently at 36 cents/Mcf and have hovered between high-20s to low-40s cents/Mcf—for a storage operator. This is “not the greatest news you want to hear,” Mitchell said.

“The tremendous growth in production, together with a lack of takeaway capacity, has led to significant basis degradation,” Mitchell said. “Over the last five years we’ve seen a pretty steady degradation of the pricing spread on the summer-winter strip.”

Part of the problem, according to Mitchell, is the time lag needed for demand to catch up with supply. “Today we’re facing some pretty significant headwinds,” he said. “We’ve got this tremendous growth taking place. The demand always takes longer. The supply can react so fast.”

However, while Marcellus reserves continue to increase—enough to meet market needs for “the next 20 to 30 years”—Mitchell cited a variety of reasons why the northeast Marcellus gas market would over time find greater balance. For example, a compilation of gas-fired power projects within 60 miles of the Stagecoach facility amounted to almost 2 Bcf/d of demand.

“We’ve seen an influx of projects in the northeast. Maybe not all of these will get built, but we believe that a significant portion of them will be built over the next five years,” said Mitchell. “But when you’re talking about 2 billion cubic feet per day of incremental power generation demand in the basin, that’s good news for the E&P producers; it’s good news for the market. It is one of the factors, in addition to pipeline projects, that will address the overhang of supply we’re currently seeing in the northeast Marcellus.”

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Mitchell additionally pointed to more than 5 Bcf/d of takeaway projects involving seven pipelines, which are forecast to come online in the next three to four years. And regional utilities were also sourcing more system supply from both the northeast and southwest parts of the Marcellus, he added.

In a move to incentivize buyers and sellers to transact more in the basin, Crestwood launched a brand new contract on the Intercontinental Exchange in the fourth quarter of last year. One feature is that access to the Stagecoach Marcellus Hub is available at no cost, Mitchell said.

Two pipeline expansions are also planned by Crestwood. To the north, where Crestwood’s system connects with Millenium Pipeline, the plan is to repurpose an intrastate line to provide an additional outlet to Dominion Transmission. The other expansion is at the southern end of its system, between the Tennessee and Transco lines, where the new Marc II Pipeline is to be built. Both expansions are planned to have a 2018 in-service date.

Chris Sheehan can be reached at csheehan@hartenergy.com.