Key Mid-Atlantic Pipeline Infrastructure - Assessing the Impact of the Mountain Valley Pipeline on Regional Natural Gas Markets

At 303 miles, the Mountain Valley Pipeline (MVP) is one of the longest, recent natural gas pipeline construction projects from the Marcellus and Utica basins. MVP is designed to provide lower-cost gas to markets in the Mid and South Atlantic regions of the United States. It will supply two billion cubic feet per day (Bcfd) of firm transport capacity from the Marcellus and Utica shale to markets in the Mid and South Atlantic regions of the United States. It will connect the Equitrans transmission system in Wetzel County, West Virginia to Zone 5 of the Transcontinental Gas Pipeline Company’s (Transco) at compressor station 165 in Pittsylvania County, Virginia. MVP, owned by Mountain Valley Pipeline, LLC, is a joint venture of EQM Midstream Partners, LP; NextEra Capital Holdings, Inc.; Con Edison Transmission, Inc.; AltaGas; and RGC Midstream, LLC. EQM Midstream Partners, which owns a 47.2% interest in the pipeline, will operate the pipeline when it comes online [1]. Since the beginning of construction in 2018, costs of the pipeline have increased by nearly 80% and the expected in-service date has been delayed by more than four years. As it now seems likely that the pipeline will complete construction by the end of this year, this article examines the impacts on the natural gas market when the pipeline comes online.

How permitting delays led to an increase in the pipeline cost

The developers of MVP filed the FERC Application in October 2015, and the pipeline received its Certificate of Public Convenience and Necessity in October 2017. Construction started in early 2018 with an estimated cost of $3.7 billion.

However, since the beginning of the construction, MVP has faced multiple legal challenges to its permitting. The authorizations from the U.S. Forest Service, Bureau of Land Management, U.S. Army Corps of Engineers, U.S. Fish and Wildlife Service, and the National Park Service were challenged, which delayed the construction and prevented the project facilities from being available for service by the original deadline of 2019. ?As construction was delayed, the project cost was adjusted. In 2019, the project cost went up by $900 million to $4.6 billion with half of that incremental cost being driven by extended periods of work stoppage.

By Spring 2021, despite the pipeline being 92% complete, the total project cost increased to $6.2 billion, and the targeted in-service was delayed to Summer 2022. However, as challenges persisted, it failed to meet the revised schedule. By the end of 2022, the project was 94% complete with more than half the affected land restored and only approximately 20 linear miles of pipe remained to be laid.

On June 3rd, 2023, President Biden signed the U.S. debt ceiling bill which envisaged the approval of all the remaining federal permits for the pipeline. However, it only turned out to be a short reprieve, as MVP found itself at the center of legal contention yet again. The 4th Circuit Court of Appeals issued stay orders to review lawsuits against the construction of the three-mile pipeline section that passes through the Jefferson National Forest. In retort, Equitrans Midstream made an emergency appeal to the U.S. Supreme Court, seeking to overturn the appellate court's orders. On July 27th, 2023, the Supreme Court paved the way for the construction of the pipeline to proceed by lifting the lower court’s stays.

Today, the total project cost is estimated to be $6.6 billion if the project is completed by the end of the year.

Impact of MVP on regional natural gas pricing

The Marcellus and Utica continue to be the largest and most cost-effective gas production basins in North America. Gas supply from MVP, which would bring gas from those basins to the South and Mid-Atlantic, would lead to lower natural gas prices along the Atlantic Coast. ?

ICF performed a market analysis with and without the pipeline to examine the impact on natural gas prices in the region and how it will benefit the customers in the Mid and South Atlantic region if/when the pipeline is completed [2]. There are two general impacts of note.

The first is an increase in production in the Marcellus/Utica region due to MVP drawing supply to serve the southeast. As MVP would procure gas from the Marcellus and Utica basins, the gas prices in the Marcellus and Utica are expected to increase by $0.03/MMBtu (in inflation-adjusted2022$) between 2024 and 2040. Consequently, gas production in the Marcellus and Utica basins is forecasted to increase as the market rebalances. Both the price increase and the annual production increase in the Marcellus and Utica basins are relatively minor, with production up by less than 1% and prices up by 1%.

The primary impact of the MVP will be observed in the Mid and South Atlantic region that MVP will deliver to. As per ICF’s market fundamentals analysis shown in the graph below, with the MVP online, natural gas prices for Virginia customers are projected to decrease on an average of $0.47/MMBtu (in 2022$) between 2024 and 2040. The prices in North Carolina are anticipated to decrease on an average by $0.06/MMBtu (in 2022$) during the same period. The resulting decline in prices would facilitate additional coal plant retirements and gas-fired power generator construction in the Southeast U.S. while holding prices down for residential, commercial, and industrial consumers in the region.

Additionally, with the MVP online, 2 Bcfd of gas will be available on the Transco pipeline corridor which extends all the way from South Texas to New York City. Projects like the MVP Southgate Project and Transco’s Southside Reliability Project, which would increase the ability of MVP gas to reach North Carolina and South Carolina, and Transco’s Southeast Supply Enhancement Project, which would transport MVP gas as far south as Alabama, would further increase Marcellus and Utica production, the utilization of MVP, and the impact of the low-cost natural gas supplies on the Southeast U.S.

At ICF, we understand the need to stay up-to-date and informed on market trends in the ever-evolving natural gas industry. Our forecasting and advisory?services provide our clients with accurate and thorough data for optimized success. If you are interested in receiving more in-depth insights into North American gas markets, please feel free to contact Prasanna Rao at [email protected].

Contributors to this article were ?Shruti Srivastava, Neha Jain, ANANT KUMAR GARG, Andrew Griffith, Michael Sloan and?Prasanna Rao.

[1] Mountain Valley Pipeline Project

[2] The analysis did not include follow-on projects like the MVP Southgate project, Transco’s Southside Reliability Project, or Transco’s Southeast Supply Enhancement Project, which would increase the capacity to transport gas from MVP’s interconnect with Transco in Virginia.

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