Where It's At, Part 2 - Timing Is Everything for Gulf Coast Gas Producers, LNG Offtakers

As U.S. LNG export project development accelerates along the Gulf Coast, one of the big uncertainties is where will all that feedgas come from? We estimate that there are a dozen Gulf Coast projects totaling 16 Bcf/d of export capacity in the running for completion in the next decade, with 60% of that capacity sited along a less-than-100-mile stretch of coastline straddling the Texas-Louisiana border. One of the major factors that will influence the timing and commercialization of the projects is the availability of feedgas supply where and when it is needed. With pipeline projects and production growth in the Marcellus/Utica shales at a veritable standstill, the Texas and Louisiana production regions — the Permian, Eagle Ford and Haynesville — are the frontrunners for serving the bulk of the resulting Gulf Coast demand growth. Assuming no midstream constraints, RBN’s Mid-case production forecast anticipates growth from the three basins will total 15.5 Bcf/d by 2032. In today’s RBN blog, we look at how well (or not) production levels will line up with feedgas demand.

As we laid out in the first part of this series — and earlier this week in Jump In The Line, Part 5 — the momentum behind new U.S. LNG export projects is the strongest it’s been in years. After a lengthy dry spell, long-term LNG offtake deals have made an unmistakable comeback, and a number of projects have made big strides toward taking final investment decisions (FIDs). Unlike the first wave of Gulf Coast liquefaction and LNG export development in the mid-2010s — which was well-timed with fast-rising natural gas supplies — the next wave, which will kick off in earnest in 2024 with the expected completion of Golden Pass, may not go as smoothly. This is because the first wave primarily utilized existing import terminals and transportation routes and coincided with a slew of reversal and expansion projects designed to move rapidly growing Marcellus/Utica gas supplies south to the Gulf Coast. In contrast, many second-wave projects will rely on greenfield development to some degree — whether it is the facilities themselves, the coastal pipelines that will supply them, or the midstream capacity to gather, process and move new production growth out of the Texas and Louisiana basins. That’s a lot of moving parts, and each are critical to understanding long-term supply-demand trends in the Gulf Coast. It’s become abundantly clear that the timing and availability of gas supplies to new LNG terminals will largely pace export growth in the next wave.

In Part 1, we began our analysis with a look at where the feedgas supply for additional LNG exports is likely to come from. With existing Appalachia-to-Gulf-Coast pipelines constrained and fierce headwinds for new ones, the Marcellus/Utica will take a back seat to other basins during the next round of LNG development. Instead, the Permian, Eagle Ford, and Haynesville are the most natural targets for LNG players looking to source their gas, especially given their proximity to the Gulf Coast and the more hydrocarbon-friendly regulatory environments to support new infrastructure. Both the Permian and Haynesville have been hotbeds of midstream development in recent months to address bottlenecks, and the Eagle Ford has been singing its own Come Back Song and showing signs of a production recovery of late, reversing the declines of recent years.