Analysis: Natural gas bulls are having a ‘Jurassic Park’ moment

North America’s natural gas market just had a “Jurassic Park” moment — a reference to that scene in the old Steven Spielberg movie where two children are puzzled by ripples in a water cup, which turn out to herald the thunderous approach of a T-Rex.

In the gas market’s case, the ripples took the less-poetic form of a couple of pipeline projects getting approved by the Federal Energy Regulatory Commission. Both projects, the Williams Cos. Inc.’s Atlantic Sunrise and Energy Transfer’s Rover, will allow natural gas produced in the Appalachian region to be ‘exported’ to other parts of the U.S. and Canada.

Appalachian gas is the monster.

The Marcellus and Utica shale basins — which lie predominantly beneath West Virginia, Pennsylvania, New York and Ohio — are enormous.

The U.S. pipeline system, however, was originally built to bring gas into the Northeast’s big cities from places like Texas and Canada, not the other way around. So a glut of gas has built up in Appalachia. That has left local producers having to either scale back growth, do deals to diversify out of the region, or just take a discount on their gas.

That spread is why companies such as Williams and Energy Transfer want to build new pipelines.

The FERC approvals came in a rush last week because one of its commissioners stepped down on Friday, leaving it with only two and, therefore, without a quorum. Atlantic Sunrise and Rover — the latter with some caveats — squeaked under the gate before it came down.

Nexus, another planned pipeline that is a joint venture between Spectra Energy Corp. and DTE Energy Co., didn’t get its certificate in time. Even so, DTE said on Monday that the two companies “remain committed” to Nexus starting up toward the end of this year, pending a new FERC quorum. Given the president’s fondness for both pipelines and natural gas, the administration may press Congress to appoint a new commissioner sooner rather than later.

The upshot is that, after years of bondage, Appalachia’s gas producers may flip to having more pipelines than they need to take their gas away:

Even if Nexus’s timetable were to slip somewhat, it’s clear that within 12 to 18 months, there will be more capacity for Marcellus and Utica gas to flood into Midwestern, Southeastern and even Canadian markets.

This is an unalloyed boost for the pipeline builders as well as regional gas producers such as Cabot Oil & Gas Corp., Range Resources Corp. and Southwestern Energy Co. Cabot’s stock jumped as much as 13% on Monday morning, Feb. 6.

More pipelines, though, also mean more gas-on-gas competition. We’ve seen this already in the global gas market, where new supply from places such as Australia and the U.S. are penetrating previously locked-up markets such as Europe (there’s a reason Russia finds it necessary to weigh in on the fracking debate).

In Appalachia’s case, local gas production has already been nudging rival supplies out of the region. Look at what’s happened to imports of Canadian gas into the northeastern U.S. in the past few years.

As more Appalachian gas flows out to the wider North American gas market over the next couple of years, so benchmark prices will fall.

More pipelines form part of a wider, deflationary trend of rising energy supply that is likely under President Donald Trump. That means not only gas markets, but also coal miners and even power generators will feel the effects as those ripples grow more intense.