Over the next three years, 16 pipeline projects are in the works to add more than 14 Bcf/d of new take-away capacity to move Marcellus/Utica natural gas to the south and west, relieving takeaway capacity constraints that have plagued the Northeast since 2012-13. Much of this gas will be moved to the Gulf Coast, primarily via reversals of pipes that traditionally transported gas north and east, and will target rapidly growing LNG and Mexico export markets. But few of these pipeline projects get the gas all the way to those export outlets. The new supplies must traverse “Miles and Miles of Texas” (and Louisiana) to reach the export gateways and along the way deal with shifting production trends within the state, pipeline systems that are "telescoped the wrong way" constraining capacity of the Texas pipeline grid, and unique regulatory considerations associated with Texas intrastate pipelines. These issues are addressed in RBN’s latest Drill Down Report, highlights of which we discuss in today’s blog.
Most of the pipeline projects that will provide desperately needed takeaway capacity out of the Marcellus/Utica region will either bring gas to states on the U.S. Gulf Coast or move gas into markets that have been traditionally served by Gulf Coast supplies, displacing those volumes back into the Gulf region. Either way, significant volumes of gas are being pushed into two states that have historically been the most prolific U.S. sources of natural gas supply: Louisiana and Texas. Isn’t this a bit like bringing coal to Newcastle? What are Louisiana and Texas going to do with all that incremental gas supply? Some will be used to generate electricity, not only in Louisiana and Texas, but in a few states where gas will be dropped off along the way to the Gulf Coast. But most of the gas is targeted for exports into Mexico, where it will be used to generate power in that country, or is intended for LNG exports to meet demand in Latin America, Europe and Asia. A few new natural gas export facilities have already come online over the past two years, including the first liquefaction trains at Cheniere Energy’s Sabine Pass LNG terminal in Louisiana and NET Midstream’s pipeline to Mexico, which together have ramped U.S. gas exports almost 2.0 Bcf/d over the past two years. Many more export facilities are being developed, including liquefaction/LNG export capacity at Sabine Pass, LA; Freeport, TX; Hackberry, LA; and Corpus Christi, TX, plus another half dozen new pipeline projects being built into Mexico connecting through Texas natural gas supply corridors.
Thus the gas supply is on its way to the Gulf Coast, and the facilities to export the gas are either in operation or under construction. But challenges remain for the U.S. Gulf natural gas market. Gas supplies moving into the region from the Northeast must be transported to those export facilities along the coast and the Rio Grande, in many cases across “Miles and Miles of Texas”. It is not just a matter of distance. Many of the gas pipelines in the region were originally built to move vast volumes of gas from traditional production areas in Texas, Louisiana and the offshore Gulf of Mexico to space-heating, power-generation and industrial demand centers in the U.S. Northeast and Midwest. For many decades Texas’s pipelines moved gas to these markets as they were intended, adding supplies as they moved to the north and east along the Gulf Coast, usually getting larger (both in terms of diameter and capacity) from the point of origination until the pipeline traversed all supply regions. This “telescoping” of the pipeline allowed a smaller pipe to be used at the point of origination, adding capacity as new supplies entered the system, usually with a big jump in diameter and capacity where large offshore supplies entered the pipelines from Texas to Alabama. Now, with the pipelines reversing to flow south and west, several of these pipelines are “telescoped the wrong way”––that is, they get smaller as they get closer to new delivery points at LNG export terminals along the Gulf Coast and at the Mexico border, thereby limiting capacity on those interstate systems to meet the new demand sources.