P.H.P., Dynamite! - Kinder Morgan and EagleClaw Midstream's Proposed Permian Highway Gas Pipeline

Permian natural gas fundamentals were rocked with some major infrastructure news on Monday, when Kinder Morgan announced its plans to build the 2-Bcf/d Permian Highway Pipeline (PHP) from Waha to the Texas Gulf Coast. The announcement revealed that EagleClaw Midstream, a Blackstone Energy Partners portfolio company, has signed a letter of intent to become a 50% owner in the project and commit natural gas volumes to the pipeline. Adding firepower to the project, Apache Corp. is committing significant volumes to the pipeline too, with an option to take an ownership stake. While Kinder Morgan and EagleClaw Midstream stopped short of a final investment decision (FID), the destination flexibility that PHP’s tie-ins with other key pipes offer makes the project a major contender in the race to become the second new long-haul natural gas pipeline out of the Permian. Today, we discuss the latest infrastructure development in the Permian natural gas market.

Even if you’re only an occasional visitor to the RBN blogosphere, you’ve likely seen at least a few of our blogs on the challenges facing Permian Basin natural gas markets. Just a few days ago, in Trouble Every Day, we outlined potential options for Permian natural gas should pipeline capacity out of the basin fill up before the first new pipeline — Kinder Morgan’s Gulf Coast Express (GCX) — starts up in late 2019. We most recently discussed the GCX project and other potential competing projects as part of our Blame It On Texas series. Neither of those blogs had any mention of the latest Permian project to blast onto the scene, Kinder Morgan and EagleClaw Midstream’s Permian Highway Pipeline. Here, we take a look at the specifics of this previously unannounced project and its potential impacts on the future of the Permian natural gas market.

First, some details. The Permian Highway Pipeline — PHP for short — is an approximately $2 billion, 42-inch-diameter natural gas pipeline that would transport up to 2 Bcf/d about 430 miles from the Waha Hub in West Texas to the Texas Gulf Coast. (A possible switch to a 48-inch-diameter pipe is under consideration, depending on the level of shipper interest.) The big magenta arrow in Figure 1 shows the pipe’s general direction; the project’s actual route hasn’t been revealed yet. The Permian end of PHP would include connections to Kinder Morgan’s, EagleClaw Midstream’s and Apache’s existing systems there, with additional tie-ins with interstate and intrastate pipes at Waha. The PHP project also would hold capacity on Kinder Morgan’s intrastate pipeline systems (more on this in a moment), which would enable flows into the Agua Dulce Hub (in South Texas, providing access to several pipes to Mexico); the Katy Hub (30 miles west of Houston); and pipeline headers into liquefaction/LNG export terminals in Corpus Christi and Freeport, TX.