Stiff Competition - How New Permian-to-Corpus Gas Pipelines Will Affect Coastal Flows

Rising natural gas exports from South Texas and increasing production of “associated” gas in the Permian Basin are driving the development of several new gas pipelines from West Texas to the Agua Dulce gas hub and nearby Corpus Christi. The age-old questions apply: How much new pipeline capacity will be needed, and how soon? The construction of these new pipelines also raises the question of how a potential flood of new gas supply from the Permian to the South Texas coast might affect plans by others to flow gas down the coast from Houston. Today we continue our look at proposed gas pipelines from the Permian to Agua Dulce and Corpus Christi with a review of two more projects and their potential impact.

In Part 1 of this series we discussed the fact that two of today’s hottest energy stories—the crude oil production boom in the Permian and the boom in U.S. exports of natural gas (pipeline exports to Mexico and LNG exports by ship) —have, in a way, converged. The production economics in parts of the Permian are so favorable that significant crude production growth is likely under even pessimistic oil-price scenarios, and with that incremental crude output will come big volumes of associated gas and natural gas liquids (NGLs). Due to the Permian’s long history as a major producing area, there is sufficient gas pipeline takeaway capacity for now, but probably not for long—and, with South Texas demand for export gas growing, the logical direction to move incremental Permian-sourced gas is southeast to the Agua Dulce gas trading hub in Nueces County, TX and to Corpus Christi, about 30 miles east of the hub.

Until recently, many would have guessed that “Agua Dulce” was a new challenger in the premium-brand water market (“Would you prefer ‘San Pellegrino,’ ‘Agua Dulce’ or tap water?”). Now, Agua Dulce is recognized as a key hub for piping U.S. gas to Mexico—and, over time, to liquefaction/LNG export terminals under construction (or in pre-construction development) along the South Texas coast (beginning with Cheniere Energy’s Corpus Christi LNG facility, whose first three liquefaction “trains” are expected to start coming online by 2019).

In What It Takes, we described the drivers behind Agua Dulce’s new rock star status: namely, its central location at the confluence of four long-haul interstate pipelines and four major intrastate pipelines, as well as its role as the starting-off point for existing or planned pipelines to the Mexican border. Among the latter is NET Midstream’s 2.1-Bcf/d NET Mexico Pipeline (online since December 2014; yellow line in Figure 1), which runs from Agua Dulce to an export point near Rio Grande City, TX in Starr County, and Enbridge’s planned 2.6-Bcf/d Valley Crossing Pipeline (due in-service in late 2018; brown line), which will move gas south from Agua Dulce to the Gulf Coast near Brownsville, TX. (There, Valley Crossing will feed into TransCanada’s planned Sur de Texas marine pipeline, which will extend south to Mexico’s central-eastern coast.)

Gas supply to the Agua Dulce hub currently is sourced two ways: southbound flows via the inter- and intrastate pipes running along the Texas Gulf Coast Industrial Corridor, and production from the Eagle Ford and other “local” South Texas wells via nearby gathering and processing systems. As we said in our Coming Around Again series, 2.3 Bcf/d of new southbound capacity is planned to be added to those industrial-corridor pipes by 2020. The same series also discussed RBN’s Production Economics Model, which suggests that Eagle Ford gas production (which declined sharply from its early-2015 peak through most of 2016) has bottomed out and looks to be set to rise by about 0.8 Bcf/d to 5.3 Bcf/d by 2020.

The prospect of moving large volumes of associated gas from the Permian to Agua Dulce has the potential to up-end expectations about the long-term sourcing of gas headed to South Texas export markets. (More on this in a moment.)

Last time, we discussed one of at least three planned “Permian-to-Corpus” gas pipelines: NAmerico Partners’ proposed 1.85-Bcf/d Pecos Trail project, which the company plans to complete by mid-2019. At the West Texas receipt end of Pecos Trail, NAmerico is planning as many as five laterals that would receive gas from a variety of Delaware Basin and Midland Basin production sources and feed the gas into the mainline pipe, which would run from near the Waha hub to Agua Dulce (green line in Figure 1). At Aqua Dulce, Pecos Trail is expected to connect with a number of interstate and intrastate pipelines, including Kinder Morgan’s Tennessee Gas Pipeline (TGP), Natural Gas Pipeline of America (NGPL), and Enbridge’s Texas Eastern Transmission Co. (TETCO). The intrastate connections are expected to include Kinder’s Tejas and Texas systems, Enterprise Products Partners’ Texas system, and Energy Transfer Partners’ Houston Pipeline system.

Today, we look at two other competing plans for Permian-to-Corpus pipes: Kinder’s proposed ~1.7-Bcf/d Gulf Coast Express (GCE) and Enterprise Products Partners’ yet-to-be-named entrant. Kinder’s 430-mile, 42-inch-diameter project (planned to come online in the second half of 2019) would run from the Waha hub in West Texas’s Reeves County to Agua Dulce (red line). Gas supply for GCE would be sourced from the Permian’s Delaware and Midland basins, and fed into GCE several ways: from existing receipt points along the company’s Kinder Morgan Texas Pipeline (KMTP) and El Paso Natural Gas Pipeline systems in the Permian; from a proposed interconnection with Energy Transfer’s 1.4-Bcf/d Trans-Pecos Pipeline (which started operating on March 31); and from additional interconnections to interstate and intrastate pipelines in the Waha area.