The Fate or Fortune of Mountain Valley Pipeline

This post features insights on the Mountain Valley Pipeline and was originally featured in our April 2021 Monthly Monitor, which includes articles and analysis for the natural gas, electric, and crude oil markets. To sign up for the Monthly Monitor distribution list, click here. To download and read past issues, click here.

The Mountain Valley Pipeline (MVP) pipeline project is a Federal Energy Regulatory Commission (FERC) regulated natural gas pipeline system which will span approximately 303 miles from northwestern West Virginia to southern Virginia. With a large supply of natural gas from Marcellus and Utica shale production, the pipeline is expected to provide up to 2 billion cubic feet per day (Bcf/d) of firm transmission capacity to markets in the Mid and South Atlantic regions of the United States.

Although fully subscribed under 20-year commitments, MVP has a few significant obstacles remaining that could cause the 90%+ completed pipeline from being put into service. The pandemic has cut demand for natural gas, lowering prices over the last year and causing some to reconsider the need for the project. However, these projects are years in the planning process and not easy to alter once construction starts. Hurdles remaining include stream crossing permits as well as various environmental groups protesting the pipeline in a section of its path in Montgomery County. Perhaps the biggest hurdle of all is the mounting financial costs as time goes by. The initial plan had completion by the end of 2018, at an initial cost of around $3 billion to a recent estimate of nearly $6 billion. This increase in cost alone has made fixed capacity costs of potential shippers of the project reconsider the economic benefits of the project itself.

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The Independent Oil and Gas Association of West Virginia states the importance of the MVP to West Virginia to be significant in terms of infrastructure investment, jobs, and tax revenues generated at local county and state level. The industry trade group also firmly believes there will strong market for gas from the Mountain Valley Pipeline – plenty of buyers, at potentially lower than normal cost. However, there has been a shift in the wind on energy production during the time it is taken to build the MVP.

It will be harder for investors to walk away from the MVP as Dominion Energy did with the Atlantic Coast Pipeline project. There are more entities involved, markets relying on the gas, producers counting on access to a new market, and stakeholders waiting on the financial returns of a completed investment. As more time passes and new advances show promise for other modes of potentially cleaner energy, the potential for completion of the Mountain Valley Pipeline grows murkier. Supporters feel if the pipeline does go through, it could be one of the last, if not the last big one to be constructed. If the MVP is completed and put into service, something interesting might happen; It could make the 303-mile natural gas conduit a more valuable asset than expected, as one of the last of its kind.

The completion of the MVP will be one important indicator for future natural gas prices in the mid-Atlantic region. However, for two specific liquid trading points, Dominion South and Transco Zone 5, the effect of the MVP will be magnified. Shown below are historical spot prices for the two locations.  As the curves indicate, there is the potential for more volatility for Transco Zone 5, particularly in the winter if the pipeline does not get completed (see January 2018 during a cold weather period in the mid-Atlantic period and again in February 2021).

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