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Any Way You Want It - Gas Market Players Seek Optionality With New Gulf Coast Pipelines

Natural gas production in the Permian is still on a roll — increasing so fast that midstream infrastructure can barely keep up. But producers, marketers and shippers want more than new takeaway capacity. They also need to know that the pipeline systems they sign up with can reliably move their gas to markets where they can get the best price. Put simply, they are demanding optionality. In today’s RBN blog, we discuss the optionality provided by a WhiteWater Midstream-led joint venture’s (JV) expanding gas pipeline network in Texas, including a brand-new project between the Agua Dulce and Katy gas hubs that’s in the works. 

The rising tide of Permian natural gas production has been one of the most prominent features of the U.S. energy market over the past decade-plus. Even still, the torrent of gas continues to push out, filling every available nook and cranny, displacing gas from other basins, and spurring new pipelines and industrial projects to make good use of all that’s produced. By far the most dynamic market for that gas is along the Gulf Coast, where new centers of demand are being developed, none more impactful than LNG export terminals that enable the gas to flow to overseas markets.

However, as we’ve discussed in the past, producers, marketers and shippers are not eager to commit to new capacity, despite the sometimes spirit-crushing prices endured when gas supply outruns pipeline availability. If and when major players with the wherewithal to make such a commitment prepare to sign up, they want to make sure the chosen pipeline system can reliably deliver their gas to markets where they can sell it for the best possible price. And that goes beyond just the tariff rate of the pipeline. It means finding an operator with the expertise, operational processes, customer service and integration with other systems to make the job of getting gas from the field to the end user as smooth as possible.

In a word, they want optionality. If they’re going to underwrite a pipeline, they want to deliver gas where they want, when they want. However, with gas supplies surging and pipelines congested, that’s easier said than done and it’s often the operators with the biggest scale that are most able to offer those kinds of services. But it’s often not good enough just to get to a hub like Katy or Agua Dulce — shippers want a clear path to the coast and then along its length, where LNG export terminals and other demand centers abound.

Optionality among supply sources and end markets also enables shippers to find solutions to issues that may arise — from exploiting the most optimal paths to market and responding to unplanned outages (upstream or downstream) to dealing with issues like contaminants. All the usual suspects in the midstream sector are in the game, but today we’re focusing on one in particular: the WhiteWater Midstream-led JV’s expanding gas pipeline network — including a brand-new proposal for a pipe between Agua Dulce and Katy — and the flexibility it provides. 

Since RBN started publishing our weekly NATGAS Permian report in mid-2017, the basin’s dry-gas output has more than tripled — from 6.5 Bcf/d then to north of 20 Bcf/d now — and the Mid Case scenario in RBN’s latest production forecast ($70/bbl WTI and $3.75/MMBtu Henry Hub gas) shows Permian gas production approaching 27 Bcf/d by 2030. 

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