Get Ready, Part 2 - More on the Changes Coming to Texas Gulf Coast Gas Markets

This much seems clear: natural gas demand along Texas’s Gulf Coast will be rising sharply, as will gas supply from the Permian and other inland plays to the coast. The catch is that, like clumsy dance partners, the increases in demand — mostly from new liquefaction/LNG export terminals and Mexico-bound gas pipelines — and the incremental supply to the coast via new, large-diameter pipes from the Permian are likely to be out of sync. That shifting imbalance, in turn, may well cause volatility in Houston Ship Channel gas prices as they relate to Henry Hub. In fact, we’re already seeing signs of what’s to come. Today, we continue our look at upcoming gas infrastructure expansions and their potential impact on the greater Texas Gulf Coast gas supply-demand balance.

As we said in Part 1, the Permian has been garnering most of the attention lately, with its rapid supply growth, limited pipeline takeaway capacity, and sometimes negative prices. But the Texas coast may soon be stealing some of the spotlight. A number of new liquefaction trains are slated to come online in Freeport and Corpus Christi — so is a new offshore gas pipeline from Brownsville, TX, to Mexico’s eastern coast. As for gas supply, Permian producers are anxiously awaiting the completion of new gas pipelines to the coast that will alleviate now-serious constraints and enable them to quickly ramp up production of crude oil and the huge volumes of associated gas that come with it.

Last time, we focused on the changes we’re already seeing in the Houston Ship Channel (HSC) market. HSC pricing has trended decidedly weaker over the past few months, especially when compared to this time last year. We admitted the shift wasn’t huge — HSC averaged $0.06/MMBtu above Henry Hub during the second quarter of last year, but that premium to the benchmark hub disappeared this year and so far this quarter (now almost over) HSC has averaged about $0.05/MMBtu below Henry. That swing of $0.11/MMBtu may not sound like much, given that prices often move more than that in a few minutes of trading at the Waha Hub, but it’s a reasonably large move for HSC and of a magnitude sufficient to impact the gas flows around that hub. We also looked at the major gas flow corridors impacting HSC (Figure 1 shows them again; “Katy/Ship” refers to the greater HSC/Katy Hub area), and how volumes along each corridor have been shifting in response to new demand, new pipeline capacity and other drivers (see Part 1 for details).

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