With LNG export demand rising along the Gulf Coast, there are big changes coming to the Louisiana natural gas supply-demand balance, with significant implications for the national benchmark pricing location Henry Hub. The state’s growing demand center is attracting midstream investment and supply from two of the fastest growing producing regions — Appalachia’s Marcellus/Utica and West Texas’s Permian. An analysis of pipeline flow data is already providing clues as to how markets will evolve in the Bayou State. Today, we continue our flow analysis of the Louisiana pipeline corridors, this time with a focus on interstate flows across the state’s western border.
In Part 1, we laid out the big-picture trends that are transforming the Louisiana market — and with them, the natural gas supply-demand fundamentals influencing key Louisiana pricing hubs, including Perryville Hub and none other than the U.S. gas market benchmark price — Henry Hub (see Roll With Me Henry). On the demand side, Cheniere Energy’s Sabine Pass LNG facility in Cameron Parish, LA, over the past two years has brought online more than 3.0 Bcf/d of new demand from four liquefaction trains, which are all running near full capacity most of the time. And, there is more liquefaction capacity on the way along the Louisiana coastline. At the same time, Louisiana’s export demand is competing with rising demand at the Texas-Mexico border as Mexico’s power sector ramps up, and soon also from Texas’s LNG export facilities.
On the supply side, offshore gas production from the federal waters of the Gulf of Mexico has drastically declined, but Louisiana’s Haynesville Shale is in growth mode again. But there also is a lot of other production that’s targeting this growing demand. Midstreamers have undertaken a slew of pipeline expansion and reversal projects (see Fill Me Up Buttercup) that will send Marcellus/Utica shale production volumes barreling down from the Northeast, with many of those pipelines converging at Louisiana’s Perryville Hub. And, there are other growing basins, like West Texas’s Permian, Oklahoma’s SCOOP/STACK, and Louisiana’s own Haynesville, also targeting Gulf Coast demand.
Some of these trends have been developing for some years now, but it’s only over the next couple of years that we’ll see Louisiana flip from its traditional role in the U.S. gas market as a supply market to a newly anointed destination market. What will that mean for gas flows and pricing relationships along the way?