The Texas natural gas market is rapidly evolving, in large part due to burgeoning Permian production but also due to gas production gains in East Texas driven by strong returns on new wells in the Haynesville and Cotton Valley plays. Most of this supply growth is looking to make its way to the Gulf Coast, where close to 5 Bcf/d of LNG export capacity is operational and plenty more is under construction. The combination of fast-rising supply and demand is straining the existing gas pipeline infrastructure across Texas, creating the need for more capacity. The Permian has been grabbing the headlines for its extreme takeaway constraints and depressed, even negative supply-area prices, and all eyes are trained on the announced pipeline projects that will eventually provide relief to the region. But pipeline constraints also are developing between the Haynesville and the Texas coast. Today, we discuss the latest solution for the intensifying Haynesville-area supply congestion.
While most of our recent blogs related to the Texas gas market have focused on the Permian, an interesting dynamic is also emerging on the other side of the state, in the gas fields of East Texas. As we discussed in What Are The Chances last August, after facing steep declines earlier this decade, gas production from the Greater Haynesville Shale producing region — including the Haynesville, Bossier and Cotton Valley formations that straddle northwestern Louisiana and East Texas — have raced higher over the past couple of years. The play has attracted renewed interest and focus from a new slate of players who have steadily improved drilling efficiencies and economics there. Unlike the Permian, where most of the gas production growth is being driven by volumes associated with oil drilling, East Texas production is being driven almost entirely by dry gas economics, which historically haven’t been attractive enough in the Haynesville at the kind of gas prices we’ve seen in the last few years — in the vicinity of $3/MMBtu. However, enhanced drilling techniques and a focus on the region’s “sweet spots” have spurred on Greater Haynesville production growth, with volumes climbing from less than 6 Bcf/d in late 2016 to about 10.5 Bcf/d in the past couple of months — surpassing the monthly average peak seen in late 2011 (maroon and blue layers combined in Figure 1). That includes the Texas side of the Haynesville (maroon layer), where volumes now top 3 Bcf/d, about 400 MMcf/d above their 2011 peak.