As natural gas exports to Mexico continue to rise and as construction proceeds on liquefaction/LNG export terminals in Freeport and Corpus Christi, TX, the need to transport increasing volumes of gas down the Texas Gulf Coast becomes ever more urgent. And moving gas down the coast is no easy task; the Lone Star State’s convoluted mix of interstate and intrastate pipelines were designed primarily to flow gas up the coast from South Texas and Gulf Coast production areas to the greater Houston Ship Channel area—and from there on interstate pipes to Louisiana and beyond. Today we use RBN’s Fretboard Model to discuss whether existing and planned southbound pipeline capacity will be sufficient to meet export demand.
For several months now, RBN has been making the case that 1) the natural gas export market—more specifically, pipeline exports to Mexico and waterborne exports of LNG—will be the biggest demand drivers for U.S. natural gas production, 2) Texas producers will need a major assist from Marcellus/Utica and other producers in supplying all the gas that will be required to keep pace, and 3) Texas’s existing networks of interstate and intrastate pipes will need major re-plumbing and expansion. We’ve tackled this Texas-size topic not only in blogs, but also in Part 1, Part 2, and Part 3 of our Drill Down series, “I Saw Miles and Miles of Texas.” The fourth and final part of that series will be published next week.
As we said in Part 3 of the Drill Down series, one of the biggest challenges in moving increasing volumes of gas south along the Texas Gulf Coast is that the interstate pipelines there are “telescoped the wrong way” —that is, because the pipes were originally designed to add supplies as they moved gas north toward Louisiana (and from there to the Northeast and Midwest), their diameters and capacities increased along the way. Also, while some of the interstate pipelines along the coast begin at the Mexican border (or at least extend deep into South Texas), others start further up the coast and therefore aren’t as helpful in moving gas to the Agua Dulce hub in Nueces County (near Corpus Christi), which has emerged as a key pricing point for the South Texas gas market, including Eagle Ford production as well as gas flows bound for Mexico.
Given RBN’s musical bent, it was natural that as we considered these interstate pipelines and their various starting points along the coast, we saw a guitar fretboard (see Play Guitar), with the six strings representing the six pipelines and the frets marking the edges of zones, each of which has progressively less pipeline capacity as you move south toward the Mexican border. (Some of the decline in capacity comes from the reverse-telescoping nature of the pipes, and the rest comes from the fact that some pipelines only come part-way down the coast.)